Brandon Munro – Building America’s Critical Minerals Technical Hub? (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (27.05.2020)
  • Market Cap: A$40M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

Our weekly romp through the world of uranium with Brandon Munro, reveals that even in a relatively quiet week, there is much to discuss. Two potential large stories.

1. AOC says she is open, as is Joe Biden, to looking at nuclear as part of the solution for America’s energy. This calms unsettled nerves within utilities as the US elections loom at the end of this year. It gives clues about budgets and eases investment decisions, although we doubt any investment decisions will be made until after the election.

2. Is America trying to build and American Rare Earths Hub? Some big clues this week as Energy Fuels engages Constantine Karayannopoulos and Brock O’Kelley, two rare earth element industry experts who each have decades of experience producing commercially viable rare earth products, to aid in the development and implementation of commercial and technical REE strategies for the new US REE program. Karayannopoulous built and sold MolyCorp for c. $1.3BN, and currently runs Neo, one the world’s largest downstream rare earths businesses. Something big is happening here.

We also discuss the parallels between uranium and rare earths. The geopolitics and global weaponising of access is becoming exacerbated.

We Discuss:

  1. COVID-19’s Effect on Uranium Supply: A Look at Kazakhstan, Australia, Canada and Namibia
  2. Disruptions to the Market and What They Mean for Uranium Investors and Companies
  3. Spot Price Movement: Anticipating the Next Spikes and Throughs
  4. US Government Parties Supporting Uranium: AOC, Bipartisans and Others Affecting Public Perception
  5. Energy Fuels Announcement: Parallels Between Uranium and Rare Earths

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Brandon, how you doing, Sir?

Brandon Munro: All good, Matt. How are you?

Matthew Gordon: Yes. Nice. Yes. Good. It’s been a long week. It feels like a long week already and it’s definitely the end of your week. So, thanks for touching base. But it’s been a quiet one all round, hasn’t it?

Brandon Munro: Yes. It’s got that feel about a week that has just consolidated after probably six, seven, eight weeks of fairly busy news and quite a lot of spot price activity. And you know, we have just had a very gentle uptick in the spot price, Uranium news, companies. It’s just been one of those weeks that has meandered along really.

Matthew Gordon: Meandered along. This is going to be a short one, and I mean it this time, but it is just worth kind of going through some of the things which are affecting the macro component because those things aren’t changing too much. If we look at Kazakhstan, obviously some numbers came out there. I mean, what’s your take on that?

Brandon Munro: Well, we have seen increasing COVID-19 cases in Kazakhstan over the last week, which is not always a trigger for relaxing restrictions as they’ve done. So you can expect from that that they will be cautious going forward. We have seen cases of, you know, 1,500 a day type thing, sorry, 350 a day type numbers coming through. And interestingly, Kazakhmys, which is the largest copper producer in Kazakhstan, they’ve now had to close one of their very big mines near Qaraghandy, and that’s the Nurkazgan copper porphyry mine. So, I think they had 35 cases out of about 1,100 workers, so it became a little hotspot for them and they expect to have it back into production with new shift rosters and all of that type of thing in June. But still, that’s a bit of a warning sign for Kazatomprom and anyone else in the industrial complex in Kazakhstan, that with rising cases, the chance of becoming a hotspot does increase.

So, we have seen continued high cases in Russia, although it is tapering off over the last week. So, I still see that as status quo. I don’t see any reason for the Kazakhs to be popping the champagne corks anytime soon there. And I’d expect to see no reason why we won’t have the Kazakh assets down for the three months that they’re expecting. And we’re a little bit more than halfway into that process now.

Matthew Gordon: Right. Okay. But again, as far as the macro story is concerned for Uranium, that continues to be good news in terms of its reduction of the supply into the marketplace. Should we touch upon some of the other countries as well? Obviously, we have talked in the past about Australia, Namibia and Canada. What are you hearing from them?

Brandon Munro: So, with Canada, first of all, we are still seeing quite a high caseload in Canada. It is tapering off in Saskatchewan; they’re starting to open up again. I think they’ve put down 8th June as the date for restaurants and bars and gyms and so on opening up. But the Northern territory still tells a different story there. So, La Loche, the village or the settlement that Cameco highlighted in their earnings call, they are seeing some level of reduction in cases, but it’s still a community in crisis and there’s little spot fires popping up around the place. There’s another settlement nearby that’s now had 35 cases in a first nation settlement. So I, again, there just isn’t any call for a relaxation of what Cameco has done there until we really see those first nation communities come through this and get over it.

Matthew Gordon: Then Australia, all fine there?

Brandon Munro:  Yes, it’s almost embarrassing to say it, being in Australia; we seem to have really come through this well. South Australia, which is the home to most of our Uranium production with the Olympic Dam and Beverly, they haven’t had a case since 7th May, and I think the last case before that was a couple of weeks before then and they don’t have any active cases left in the state. So, you can effectively declare South Australia free of COVID-19 for now. I mean, of course there’s risks about what will happen when they open up their internal borders into other States and there’s the chance of, I want to say a second wave, but it’s really still a first wave that we would be exposed to. Their main border is with Western Australia to the West and we have also got things pretty much under control; just a couple of cases each week. So, I don’t see any prospects for COVID-related supply disruption, or dramatic supply disruption at those Australian centres.

I would just say that there is still a lot of caution around interaction with indigenous communities, so that is affecting the way that ERA goes about its business. So, they’ve got different restrictions on their fly-in, fly-out and their drive-in, drive-out workforce to try and mitigate that. But the miners generally have adapted quite well now to all of these different ways of handling their shifts so it’s probably just in the irritant category now for ERA and for Olympic Dam.

Matthew Gordon: Okay. And then your territory in Namibia, are you back to work?

Brandon Munro:  Yes. Namibia is back to work. The mines in Namibia have been ticked through that. What they needed to do was present a COVID-19 management plan to the Ministry of Health before they could resume full production. They’ve done that. What we’re hearing on the ground is that neither of those giant Namibian mines are back to full production, but they are back at work. So that’s a good sign for Namibia, which has had fairly devastating economic ramifications from the shut-down, when the shutdown has been very effective at controlling the virus, they only had 16 cases that they’re aware of and now there’s a couple that have popped up in one part of the country. But again, if the testing is an indication of what’s going on in the population, they’ve effectively eradicated it for now. But at some very dramatic cost. And I think it is really heart-breaking to see what that’s done to a lot of the people there who are already on the poverty line or below. You definitely see a lot more impact on people from starvation and other related issues there compared to what they might’ve been facing with the virus itself. Into the longer term that’s going to promote a heavy development agenda and obviously incentivise the government to do whatever it can within its powers to bring on employment and development. So, in the medium term, that’s good for the Uranium industry there as well.

Matthew Gordon: Okay. So, what does all this mean? Okay. So, we have talked before, you know, in the past few shows about the macro stories, flight amount, et cetera. There continues to be disruption, and people are trying to get back to work. But what does it mean for the Uranium sector as a whole? And what’s it going to mean for some of the equities? You know, companies like Bannerman, companies that we, you know, in North America and Africa, what should people be looking for from these companies? Is it just more of the same, or how are you viewing it?

Brandon Munro: So, I think what’s relevant here is this supply disruption has contributed to accelerated destocking. Inventory has been the issue for our sector making a price break out for several years. So even though we have had fairly deep deficits, structural deficits, in terms of what is supplied in the world, primary and secondary versus what’s consumed, it’s destocking or under buying or working off inventories, whichever one of those terms you’d like to use, that’s what’s filled the gap. And that’s what has been necessary in order for the utilities to return to fully buying what they consume. So, if nothing else, this event or series of events, is probably going to take 20Mlbs out of the market. So, there’s 20M lbs of additional destocking. To put that into some sort of context for the viewers, in the US, which is the largest single market for Uranium, they destocked in 2018 to the extent of about 10M bs.

We will shortly have the numbers for 2019, but we think it was pretty similar. So, it has created the equivalent of two whole years of destocking in the US. And most people who look really closely at these numbers, and I’d consider myself in that category, believe that inventory has now returned to historically normal levels. And in certain pockets, it’s less than historically normal. And as we discussed last week, that comes in the context where there’s numerous reasons why utilities would ought to be preferring to be slightly on the heavy side for their commercial inventories right now. And what I was referring to for viewers who didn’t see last week’s show was Euratom and security of supply comments where they were very strong and advising their Euratom member utilities to maintain significant levels of inventory in order to risk manage a variety of different issues: transportation, bottlenecks in the conversion cycle and also in increasing geopolitical risk and potential for mine supply to be unavailable.

So that’s the immediate effect. The secondary effects of this go to sentiment. Now, investor sentiment – yes, that’s one thing, and I think we’re seeing Uranium stocks perform okay. They’ve sort of slowed down in terms of expectations and liquidity and volume and so on. But they have still recovered everything that they gave up to the market after COVID-19 spooked junior resources, at least. But what I really refer to when I say sentiment, is a reason for utilities to revisit their procurement strategies. In particular the procurement strategy of burning off their inventory or selling down their inventory. And at a simple decision, if it was taken more or less across the entire industry to buy what they burn, not to de-stock, not to underbuy any further, that’s going to put a lot of pressure on the structural deficit that without COVID-19 related disruption is still 20Mlbs. That’s more than 10% of the production in the market.

So I think if you look at those two things in combination; the destocking has occurred to an extent now where there is genuine tension and all it requires is the utilities to decide that that destocking has gone far enough and now it’s time to be a genuine buyer of material to cover what they’re burning in their reactors. And from there, demand growth will take care of that as we continue to see supply deficits at a structural level.

Matthew Gordon: So, do you think that people perhaps got a little bit too excited a couple of weeks ago with Uranium equities. The spot price, you know, has seen a significant recovery over the past couple of months. It’s sitting at around what, USD$34/lbs today or yesterday? Do you think that that needs to move much more to give the market further impetus to kind of move forward, or are we going to sort of see it sitting around these levels for some time to come?

Brandon Munro: I don’t think people got too excited, necessarily ,because if you look at where equities are at the moment compared to not only the spot price in absolute terms, but the setup that we have got for the rest of the year, I still think they’re deeply undervalued. What I do think happened is that many investors started this little upturn with unrealistic expectations of what would happen in the very short term. And that’s been a recurring theme in our conversations, for example, and some of the others that you’ve had as well. The expectation that this was the boom, and some of the exaggerated numbers that we have seen in terms of the extent of the supply disruption, we have seen a few commentators either get their numbers wrong or describe them in the wrong way. That’s been caught onto by some retail investors and others who think that this is like an absolute catalyst, and it’s not that. It has not had an effect on spot.

So, I think what we have seen is a slowing in equity prices, partly because there’s been some great profits for anyone who bought the dip, and as they have seen the spot price growth slow, that has been an appropriate time for them to consider taking profits. And also, for those investors who bought with just totally unrealistic expectations of what the trajectory is really going to look to. And so, I think that the setup is very, very strong for fourth quarter this year, and there’s probably going to be a few plateaus in the spot price. It’s going to have a few more lurches. It’s going to come back. But on fundamentals; fourth quarter this year, probably leading in from third quarter, are going to look fantastic. And so, for patient investors who can sit and buy these little mini dips along the way, I think there’s going to be great times.

Matthew Gordon: Yes, I think that’s right. And we have sort of said that for the past 2 or 3 conversations in the past 2 or 3-weeks. I want to talk about something else that happened this week: Alexandria Ocasio-Cortez, she is a representative from Eastern New York, US Representative, very vocal. She is a very young dynamic Democrat. And she seems to know how to use social media to great effect. And she’s come out and said that she would consider, or she’s open to nuclear as part of the green solution, which I think is big. And then the other thing that happened at the same time was that you had 10 across party or bi-partisan senators also call for the extension to the Russian suspension agreement. So, there’s a lot of noise happening in nuclear and therefore Uranium this week in the US, so that is not going away because, and the reason I say that, I think a lot of people were slightly disappointed with the Nuclear Fuel Working Group report. I think others latched on to it and said it was the next great thing. So, it’s definitely, there’s a discussion going on. What’s your take with regards to what’s happening in the United States on the topic of nuclear at the moment?

Brandon Munro: First of all, with the bipartisan comments and call for not only the Russian suspension agreement to be extended or continued, but also to be enhanced and strengthened, I don’t really see that as big news. From my perspective anyway; I thought that was a quite natural next step. It has made news because of its links with the Nuclear Fuel Working Group report that the DOE released a few weeks ago. And when you look through the list of provocateurs there, you’ve got the usual suspects who’ve already been quite vocal: Lindsey Graham, Senator Barrasso, et cetera, et cetera. I don’t look at that list for example and say, ‘Oh my goodness, that person, that’s interesting.’ On the other hand, AAC, her comments really are quite a watershed moment I think. And that is big news that perhaps has been underreported or under-recognised.

And so, if we take a step back, she has represented the vocal radical left and has very demonstrably excluded nuclear from any consideration under the green new deal with a fair bit of support from Bernie Sanders when he was still running at the time. And so, the green new deal was seen as, because that exclusion was seen as a real threat to, well, a threat to the nuclear industry and a threat to logic really, and certainly a strong threat to the achievability of its objectives. How can you possibly exclude what still is by far the largest source of clean energy in the US, and represents 22% of the grid? Now she’s had reason to change that and it’d be really interesting to know if Biden’s influence there and having a more moderating influence has played a role in that. And her comments itself for anyone out there, they should go to it directly, not only did she say that the door is open to nuclear, but she also emphasised that it is a critical part of the discussion, which is about as close as you can get to a backflip there in terms of her policy. And emphasising, I think 3 times in her comments, that the door remains open. That’s from my read, very much about allowing nuclear to come back into that conversation and start the new green deal. And there’s been a number of lobbyists and even community groups and employee groups from nuclear reactors who have proposed an alternative green deal that just has a bit more reality and allows nuclear to play its role.

So, for me, that’s important. It’s important because it is moderating the Democratic position as they start to get closer to the election. It means that one of the most attractive, if we can put it that way, like the most appealing, is perhaps a better way of saying it, one of the most appealing voices on that far left end of the Democrat party is now relatively aligned with the moderate view that Biden’s got towards nuclear. But it also goes to the capturing, I think, a realistic perspective from the younger generation when it comes to looking at what nuclear can do. What we typically see is a progression along many lifetimes where people start somewhat radically socialist and they go through university and they wave flags and they do all of that sort of stuff and they tie-dye their shirts and whatever else it was that you and I did when we were there. And then as reality sets in in life and they realise the hard grind of raising a family and paying bills, they sort of move more moderate and potentially out to the right. So, this is good for assisting the part of the constituency who are still going through that experiment with liberal socialist ideals and had made those ideals synonymous with anti-nuclear. Because the other thing to bear in mind is that subsection of society, they haven’t grown up with the fear of the bomb. And when you talk to many young people, and the stats bear this out in terms of when they segment their surveys about support for nuclear power, in many cases it is a reliance on things that Greta Thunberg is saying, or the AOC is saying, and just wanting to fall into line with the cult or with the movement, if I can put it that way. So this is important, and it’s important for shifting the generalised voter base in favour of nuclear power, and going into the election in November, it is moves like these that will create a really strong positive foundation for nuclear in the struggling US market, regardless of who gets in.

Matthew Gordon: I think it’s a very interesting time. And I think timing has been really important because if you look at people like Bill Gates, he has been banging the drum for a few years now about nuclear, you’ve got the t-shirt-wearing Michael Schellenberg who has been telling this story for a long time now. And then you’ve got things like the Michael Moore film which came out – Planet of the Humans, which I don’t know if you’ve watched, but you should watch. You have? Okay. You know, it’s kind of interesting, the narrative is interesting in terms of things slightly anti-renewable and what the implications are for a nuclear, there’s a kind of realism about what it takes to put all of this, these energy requirements together. And then you’ve got someone you know, young and dynamic like AOC and You know, telling a story to a different audience in a different time. It seems to, That’s why it’s interesting, what your thoughts were. So, it seems interesting that now 10 senators are coming together across party, bi-partisan coming together and pushing the, you know, ‘Made in America’ story, protectionism, security and all of that kind of stuff. And then you’ve kind of got a very sort of liberal, you know, Michael Moore, AOC type approach to this. Nuclear is getting support from a lot of different sides in terms of age groups, you know, institutional versus the kind of social media type thing. So, it is a very interesting, interesting time in that people, I think would better understand what nuclear is capable of. And of course, not everyone’s going to buy it or love it, but certainly the fact that it’s been talked about is good and it’s healthy.

The other thing, so, again, it’s possibly worth coming back to and seeing how that story plays out and develops. But another little thing, I said this would be short, but we always have an interesting conversation, don’t we? I don’t know how we do it. There was an announcement with Energy Fuels this week, because they have, we have previously talked to them about Rare Earths, you know, and it seems to be sort of intertwined with Uranium in terms of the, you know, radioactive material, etc. High value, the security component, strategic, geopolitical importance of it, you know, China being a big consumer of it and processor and et cetera. So there’s is a lot of parallels here, but Energy Fuels announced this week that they had engaged with, I’m going to have to look at this because this is a name which I’m going to struggle with: it says Constantine Karayannopoulos, who for those who don’t know, originally sold MolyCorp for about USD$1.3Bn. He is very big in the sector. I think he then sort of bought out when Molycorp then subsequently went bust and they then bought out Neo from it. And that’s Neo, Linus and Mountain Pass. Those are the 3 big players in the Rare Earth space, so that alignment with a US based company, with a US facility is interesting to me because of the parallels with Uranium. And I’m wondering, you know, what’s going on there? What are your thoughts on Rare Earths as a strategic mineral like Uranium is for the United States? Is that an important move for them or is that just, this is what happens in this industry?

Brandon Munro: No, most definitely. I mean, the parallels are really interesting with Rare Earths. First of all, at a geopolitical level they have similar consequences to industry that Uranium does. So, the dominance, particularly in the heavy Rare Earth sector that China has, and China’s willingness to weaponize it as well. So, if you go back to 2010, you might recall that there was an incident where an illegal Chinese fishing vessel was seized by Japan. And in one of the most interesting, blatant weaponizations of trade, China basically said, send them back or we’re not going to let any of our REEs cross the border for your technology industry. So that’s a reminder for people in the Uranium sector, just how important geopolitics can be. And whilst the concentration of Uranium is not as concentrated as Rare Earth elements, it’s not that far off when you think that four countries produce 80% of the world’s Uranium and the top 8 produced 95% of the world’s Uranium. It’s certainly not Copper or Zinc or something else that’s distributed pretty much anywhere.

The other interesting parallel is that, as you’ve noted, there’s a very strong coexistence of Uranium and Thorium in most REE minerals. So, most REE players need to have a good awareness and some understanding of Uranium and Thorium and radionuclides and all of the risks associated with that. And we have seen a little bit of the uphill battles that we face in the Uranium sector leaking out into the REE sector, such as Linus’s problems in Malaysia with local communities not having enough to do on a Thursday night and banding together to oppose the plant there and so on. So, there is a natural nesting if you like, of Uranium and REEs and I think any strategy that’s designed to safely extract the Uranium out of REE minerals for beneficial use rather than expensive storage just has to make sense.

Matthew Gordon: Yes, I’m intrigued by it and I’m going to try and speak to the CEO, Mark Chalmers next week, but I’m intrigued. It’s just, it feels to me there’s a kind of critical minerals story, a USA critical mineral story building here because the importance of Uranium, the importance of these Rare Earths, etc. I kind of feel that the stars are aligning there, because they, again, they’ll have very similar support in DC, in terms of Senators, or even in Capitol Hill itself, because these are very similar problems that they’re trying to solve. So, but look, one for another day.

Brandon Munro:  There are further parallels as well that we’re thinking about very much in the context of what the Nuclear Fuel Working Group report is driving at. You might recall that basically China said to a number of technology companies, the only way we can assure you access to heavy rare earths is for you to produce in China. And there they were successful in implementing a significant shift of technology production out of the US, out of South Korea, to a degree out of Japan. And all of those countries that just didn’t have heavy Rare Earths were enormously vulnerable. And so, China has got form, and I don’t see any reason why that form of influence on industrial bases won’t be exerted from Uranium. But here’s the interesting catch: China, the boot is on the other foot for China when it comes to Uranium, because unlike REEs where they control 95% of the market, it’s almost precisely the opposite. That will be, over time, they’ll be capable of producing only about 5% of their own Uranium domestically, absent some big discoveries. So, it is just fascinating to look at where the parallels and where the analogues are between those two sectors, so we should come back to it.

Matthew Gordon: We should definitely come back to it because I think that the language, that weaponizing is starting to be seen more. I think the USA is starting to use that language on a lot of topics, not just in the mining space. And I think, you know, the geopolitical component is always fascinating. It’s always interesting. I am sure there is a great book to be written on it as well. But look, Brandon, thanks so much for catching up with us this week. We didn’t think there was much to talk about. We were wrong.

Brandon Munro: Yes. Well either we are very interesting, or I just waffle too much. We’ll let the viewers decide that

Matthew Gordon: None of the above. So, we’re not, none of them. No, it’s not that you’re not interesting and you don’t waffle. I really enjoy it. Okay, well, I better let you get back to your weekend. You’ve got to get home, see the wife and kids, enjoy yourself. Anything planned for the weekend? Fun stuff?

Brandon Munro: Just a quiet one here. I have got a fair bit of work to catch up on. It’s going to be rainy on Sunday, so I have told the kids they can watch a movie and I’ll disappear back into the office.

Matthew Gordon: Beautiful. Good man. Okay, well keep at it. We’ll speak to you next week and see how the world has changed then.

Brandon Munro: Great. Okay. All right. Enjoy your weekend. Cheers, Matt.

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A photo of Bannerman Resources CEO, Brandon Munro.

Canada Nickel (TSX-V: CNC) – The night is young, And we’re just getting started (Transcript)

Canada Nickel
  • TSX-V: CNC
  • Shares Outstanding: 67M
  • Share price C$1.33 (22.05.2020)
  • Market Cap: C$87M

Interview with Mark Selby, CEO of Nickel Exploration company, Canada Nickel (TSX-V: CNC).

The newest nickel story on the block, with a trebled share price since we last spoke with them around the time of their IPO. Highly impressive. EV/battery metals investors, take note.

Mark Selby is a renowned mind in the nickel space; his experience at Inco and the helm of RNC has given him plenty of experience with large nickel projects: in particular, the Dumont Nickel-Cobalt project. Can he develop the Crawford Nickel-VMS Project in a faster, more capital-efficient fashion? The aim is to complete a PEA/scoping study (C$4M) by the end of 2020, with an FS (C$20-30M) following a year later. This is an accelerated monetisation event for nickel investors.

Canada Nickel just announced some encouraging drill results with an exciting PGM upside: 2.6g/t. Canada Nickel has managed to create the 11th largest nickel sulphide resource globally in just 6-months for just C$4M, and it is little surprise the market has cottoned on to this value proposition. Selby believes we are on the verge of the start of a new nickel supercycle at the start of this new decade, and he believes having one of the world’s few large nickel projects outside of Indonesia will stand Canada Nickel in good stead. The CAPEX is a whopping US$1B+, but he claims the sheer scale of Crawford will be enough to attract a major to take it out, despite it not having the “sexy high grades.”

In order to hit the upcycle, Selby wants to move fast. Canada Nickel has its skates on and it doesn’t appear anything is going to stand in its way. Canada Nickel recently completed a private placement of c. C$4.5M. The original aim was to raise C$2.5M, and now with the share price tripled, Selby feels this has shown the confidence of investors in the EV narrative, even if COVID-19 has distracted. It’s incredibly impressive that Canada Nickel’s share price is up 5X on its February IPO in a COVID-19 market scenario.

What sets Canada Nickel apart from the swathe of other nickel juniors?

A.) This is a new nickel sulfide discovery: something of a rarity right now.

B.) The potential scale of Crawford: big enough to attract a major, and Selby claims Canada Nickel has only just scratched the surface.

C.) The team’s experience demonstrated at Dumont has given investors confidence, taking something from resource to fully-permitted project.

Selby reveals that from the first two step-out holes from its latest drilling operations have more than doubled the strike length already registered. Exciting. Perhaps most importantly, the first assays from the first drill hole were the highest grade nickel intersection in the main nickel dunite area: 55m at 0.42% nickel, with 0.2g/t palladium+platinum. What will capture the excitement of investors is the prospect of filling the mill with as much high-grade ore as possible, and Selby is clear reticent of this.

The third highlight is that Canada Nickel has hit a PGM zone 100m outside of its main nickel resource, and the company has managed to hit it consistently, across several hundred metres down to 500m depth. It has been hit in 2 different spots a whopping 1.2km apart from each other. It is clear that Crawford is shaping up to be a really exciting nickel/PGM project.

What has the impact of COVID-19 been like for Canada Nickel, and what will it continue to be? In Ontario, mining was deemed an essential service, so there has been minimal disruption for the company. The assays have slowed down a little, but other than that, Canada Nickel has mitigated the impacts well and has kept employees safe.

Selby will put out another resource update in July, then another in October, in addition to a whole series of drilling/mineralogy results. these will be the key derisking events. We have no doubt Selby will continue to hit his deliverables. This could be exciting news for nickel investors.

We Discuss:

  1. Company Overview
  2. Putting Together Nickel Projects: Timeline and Strategy
  3. Recent Raise: Shareholder Support and Investor Interest in Nickel
  4. What Makes Canada Nickel Different to Other Nickel Companies?
  5. Drilling for Value: A Run Through the News Release
  6. Impact of COVID-19 on Canada Nickel and The Nickel Market
  7. Timeline for Deliverables

CLICK HERE to watch the full interview.

Hey Mark, how you doing, Sir?

Mark Selby Great. Matthew, how are you?

Matthew Gordon: Not bad. Been a while, been a while, and a few things have happened since we last spoke – good and bad.

Mark Selby: That’s right, we keep moving the ball. And there’s this virus thing that’s appeared.

Matthew Gordon: I heard, I read about that, I read about that. But look, your press release is out. There are a few things on there, which I want to talk to you about. I want to see how things are going because I was intrigued by Nickel generally in this market, and people trying to hit this cycle. There’s a real kind of interest in it. But you guys have done a financing since we last spoke as well, so I want to talk about that. But first, can we just kick off with that one-minute overview for people new to the story and we’ll pick it up from there?

Mark Selby Sure. So, what we have is a very rare thing: it’s a brand-new Nickel sulphide discovery. It’s within 6-months of drilling. We created the 11th largest Nickel sulphide resource globally. We are, because of my experience at RNC Minerals advancing Dumont and I was Head of Strategy at Inco before that, we’re able to move Nickel projects very quickly through so, and there is a scoping study by year end, a Feasibility Study by the end of 2021 because what we fundamentally believe is that Nickel goes through these super cycles which are relatively unique to Nickel, every 15 to 20-years, and we think that with the EV overlay on top of an already strong demand from stainless steel and other traditional Nickel demand sources, that we’re heading for one of these in the middle part of this decade. So, we have got one of the few large-scale Nickel projects outside of Indonesia ready for that market. We think that is going to create a lot of value for shareholders.

Matthew Gordon: It would be great if you can do that. But they are quite expensive to put together, aren’t they? Traditionally?

Mark Selby Oh yes. I mean, Nickel projects at the end are, to build these projects need a billion-dollar capital. And, again, when you look at most people in terms of how much money they need to spend on drilling, the nice thing about these larger-scale, lower-grade operations is, they don’t have the sexy high-grade attached to it. But the reality is, your chances of actually finding a resource of the scale that’s going to attract a major. You can drill these off relatively productively when you know what you’re doing. And so, we raised, we did the first 11th largest from scratch for USD$4M and this PEA is going to cost us about USD$4M to get done. We’ll continue to expand the Resource, the higher-grade part of this resource. That’s really what we’re focused on here – adding value, not necessarily tons. And so, yes, we’ll be able to deliver our Feasibility Study, we hope, for somewhere between USD$20M and USD$30M max.

Matthew Gordon: And what is the timing for all of this? You talked about doing a PEA by, by when? And when’s the Feasibility going to get done? Because if you’re going to hit the cycle, you’re going to need to get your skates on, right?

Mark Selby: Yes, yes. And we have, yes. I appreciate the Canadian analogy there. So yes, no, we’re skating, or skating as hard as we can. So, we’ll have that PEA done by the end of the year, hopefully a little earlier than the end of the year. And then we have got a whole team of people that we have worked with before, we’re getting them into place. And the whole goal with that team is, the scoping study is going to be to pull up before the end of the year. The goal is really having that Feasibility Study done by the end of December 2021. Because the reality is in terms of, you want to be one of the first projects out of the gate to attract the large-scale investors. And then two, in terms of take-outs, valuation wise, if you look at what Nickel sulphide discoveries, large ones, have gone out for it in the past, you get one or two per decade, they tend to get taken out between scoping study and Feasibility Study. So, we want to surface that value as quickly as possible for our shareholders.

Matthew Gordon: Okay. And then you raised this money recently. What type of people came in, because I know everyone’s sniffing around – EV revolution, battery revolution, whatever you want to call it. Nickel is at the forefront of a lot of people’s minds, but there’s a lot of stories out there too. Did you find it easy or difficult to raise capital?

Mark Selby Well, we chose probably one of the sort of second worst months in the history of capital markets to go to raise money, back at the beginning of April. I mean, Gold has been able to raise money, and it has been good to see the money that is being raised in Gold, but outside of Gold there’s been almost nothing raised in the base metal sector. So, I think it is a sign of confidence, A, in the Nickel story generally. And then B, in our project specifically, that we went out for USD$2.5M and we ended up with USD$4.5M, and our share prices has basically tripled since we announced that story.

I mean, we started trading at the end of February, just as COVID was breaking, but our share price is up 5x during that timeframe.

Matthew Gordon: Which is insane. So obviously people are liking what they’re hearing. So, what precisely do you think that’s resonating with them? Because again, we have spoken to companies telling Nickel stories, they’re not getting that kind of reaction.

Mark Selby I think that A, that it’s a new Nickel sulphide discovery; a lot of Nickel projects that are in the market have been around before and then recycled. This is truly a new discovery. B, I think it’s the potential scale of this asset, again, in this market, what has traded well and what gets valued well are those projects that have the scale that can attract a major. And I think our initial resource, which was the 11th largest right out of the gate, and we just scratched the surface of what we have, I think has really got people there. And I think C, I think there’s, we did it with Dumont in terms of getting from resource right through to fully permitted project. I think there’s confidence with the investors behind us that we’ll be able to do the same thing with Crawford, but because we have done it before, we’re going to be able to do it in a much, much quicker, much more capital-efficient fashion.

Matthew Gordon: Okay. Interesting. Let’s get into the news release here, because you have done a bit of drilling. You got some numbers that look good to me, but why don’t you tell us about it?

Mark Selby Yes, I mean there are three key takeaways from those drilling results: first off in terms of the Nickel resource, we drilled off one portion, which was less than 20% of the structure that we have there to deliver that 11th largest resource. These are the first new step out holes. And so, from the first two step out holes we basically confirmed that this is more than double the strike length of what we have got already. So, in terms of resource upsize, that should give you some sense of what the scale of this resource could go. Secondly, and probably the most important point is, the first assays that we did back when the first drill hole was the highest-grade Nickel intersection that we have drilled to date in that main Nickel Sulphide area. So, it was 55m at 0.42% Nickel, and with 0.2g p/t Palladium plus Platinum. And that’s about six times what our average PGM grade is for the resource.

And again, what we’re drilling for is, we’re drilling for value, not for tons. So, what’s going to make the PEA exciting and what’s going to make people get excited about this project is being able to fill that mill with as much higher grade, higher grade ore for the first years of the project. So that is where we’re really zeroing in on.

And then the third, the third takeaway is, we hit this PGM zone setting, about 100m outside our main Nickel resource, and hit it consistently. You could cross several hundred meters down to 500m depth. And we have hit it in two other places. So again, this offset mineralisation that is going to double the strike length, it has been hit in two separate places in the same spot, 1.2km apart from each other. And yes, and then the other place that we targeted to drilling was 1.5km away from our last drill hole on the main intersection. And, we hit 2.7g p/t. So, most of what we hit before was 1.5g/t. This 2.7g/t, and there was actually 3 separate intervals that total nearly 30m of 1.5g/t material. There’s very few PGM hits outside of South Africa. And again, most of what’s in the market today has been around for a while, this is a new PGM discovery on top of what is already a large Nickel discovery. So, I think that’s the thing, people are pretty keen on Palladium and there’s very few new Palladium stories. So, I think, what’s, I know we’re not going to change the name yet, but in Canada, Nickel, the Palladium part is going to be a pretty important part of by-product credit in the economics for the PEA and the Scoping Study.

Matthew Gordon: That’s fascinating. I mean, they are meaningful grades there on the PGM. But can I just come back to, and I’m sure as you drill out more, you’ll tell us more about that, can we talk about what you mean by drilling for value? And people don’t understand this, because I’m not sure I completely understand it either. The old model is drill for resource and you’re building out the size of the ore body and that’s the old way of doing things. You’re trying to do things in an accelerated way. So, you’re trying to bring the good stuff to the fore quicker. Is that, is that what you’re doing? Is that what you mean by that?

Mark Selby  Yes, that’s exactly it. I would say Australian mining companies tend to do it. They tend to build enough resource to get their mine built then they get going. Canadian resource companies have tended to just build up larger and larger resources and that at some point they’ll put some economics around them. But it’s all about making the resource as large as possible. We already, with the first set of drilling, we’re the 11th largest already. The key piece that’s really going to move, and we have enough resource for a 50-year mine life, the key piece is really finding more higher-grade, higher-value material to be able to mine in the first few years of that mine project life. So, the geophysics that we have got sort of points as to where those higher, best areas may be. And so that’s where we have been focusing our drilling, as opposed to just stepping out on a standard basis and trying to add, just maximizing tons for the sake of maximizing tons.

Matthew Gordon: Okay. So, things are going well; share price, I appreciate, it’s great. Well done. The numbers are starting to look good. You are going to try and deliver this PEA by the end of the year. I’m assuming therefore, COVID-19 has not drastically impacted your ability to move things forward. It seems to be what I’m hearing?

Mark Selby: Yes. Northern Ontario, in Ontario, mining was deemed an essential business. So, whereas a number of other businesses and their supporting businesses shut down. In Ontario, we were allowed to continue operating and we were able to, the work that we’re doing, we can still do it in a way that keeps our employees safe, so we have been able to continue drilling. Our assays have slowed down a little bit, that’s where you’ll see there’s nine holes of assays pending. But, by and large, all the suppliers and support industries have been, they’ve been able to keep working safely and we have been able to continue to move things along, which has been great.

Matthew Gordon: Okay. And what’s your view with regards to how all of this, again I’m talking about COVID-19, is going to impact the battery market? Is there going to be a slow down before it gets back up to what it was aiming to be before? Is there going to be an impact? Because we have had a couple of CEOs come on here and go, ‘Oh, it has absolutely devastated the supply chain. It’s going to impact the way people think about these things. What’s your take on it?

Mark Selby: Yes, so I think it’s really more, well, let me talk about the battery market in general and then more metal specific. I think we are going to go through several months of economic slowdown. But I think you’re going to see governments want to stimulate the economy. So, the Chinese have always done it through infrastructure projects. And if you look at the stats that are coming over the last six weeks, they are, you’ve got copper mills running at more than a hundred percent of capacity right now. Iron ore prices; huge amounts of iron are now going into China. And the Nickel market itself, you’ve seen a lot of the physical numbers improve pretty dramatically. So, I think that’s going there.

 I think in the West where consumer spending is the biggest driver, governments are going to have to provide incentives or mail checks to people to help get consumer spending to the point where the economy is going to be growing again. And again, cars are a big ticket item; that is something where you’re going to see government incentives show up. And again, there’s a lot of discussion on non-politicians around sort of using this opportunity to retool or redesign the economy. So, I think a lot of those incentives are going to be geared towards, okay, we’re going to give you money to buy a car, help you buy a car, but it’s going to be only if you buy a clean car. So, for those people who are kind of on the fence about buying one, okay, what if I get a thousand bucks from the government to do it, then I’m going to do it.

So, I’m not as doom and gloom in terms of, I think it is going to be pretty challenging for the next year or two economically. But I think the way out of this is to stimulate the economy. And so, I think those incentives will come. In terms of the individual metals, the metal I feel sorry for the most, I think is Cobalt through this process because  it’s got three whammies: if you look at Cobalt sources of demand, one is alloys for the oil and gas industry, which has just kind of took it in the teeth. The other part is for super alloys in the aerospace sector. And so, again, airplane travel is something that’s going to take a while to fully, fully come back. And then you’ve got the EV market, which has become the third source, which is going to be, again, a few bumps here going forward. So, I think Cobalt has got it the toughest.

Lithium. Again, you’ve just got so much supply sloshing around that as we go through this low point, I don’t think, I might be wrong, but I don’t know how much Lithium production has been impacted by COVID. Where we benefit from Nickel is that one of the major mining sources is mines in the Philippines and those are going to have to ramp up to help make up for the ore that’s not coming from Indonesia anymore. But those mines have been shut for quite a period of time and it’s just been extended again. So, we’re seeing ore stockpiles coming down in China pretty dramatically. I think that’s important for investors, to think about the COVID impact, not just on demand, but on the supply of the metal. And Nickel has come out of this in pretty good shape relative to the other metals.

Matthew Gordon: That’s fascinating. That’s funny. I always love listening to you to see your take and because you understand that, that with the ghost of the micro. So I appreciate that. Well it must be exciting times for you guys. I guess you’ve just got a whole bunch of deliverables to be able to get that PA done. You feeling confident about the end of the year? That’s, that’s definitely going to happen.

Mark Selby: Yeah, I mean, between now and then we’ll have, we’ll have

Another resource update on ode in July, right. Have another resource update in October. So, before we finalize the, the scoping study we’ll have a whole series of drilling and mineralogy results again for these deposits. The key issue is, okay, how much of the Nickel can you actually recover? And again, what we’re seeing so far is very encouraging. But, we’ll have those numbers come out. And again, those are going to be the key risking events in terms of, how do we have done well getting from $0.25 to $1.25 and how do we take this, to USD$5 a share or higher from here. It’s going to be some of that news that comes out, over the summer. And then, the other big thrust of this too is, it’s easy carrying around high-grade core that looks very sexy.

You know, I did that in a prior life with target, rocks with chunks of gold in it. And, that definitely gets investor attention. But I think, in terms of delivering, building a project that the majors are going to be interested in, know large lower grade projects. I, part of the reason I’m so keen to get the economics done is to really demonstrate to people, it’s like, yes, it’s low grade, but you’re going to build an operation that’s even,, equally low cost and you can deliver very good margins., I’ll point people to believe in ATEC mine in Finland, it’s started in Scandinavia, it’s a 0.22% copper where the tiny bit of Silver and Gold is a by-product credit and it is in the first core tile cash costs for copper,, so it has a fraction of the grade, but because it’s in the right location, lots of infrastructure, it has a productive workforce and it’s built to the scale to the,, it’s the right scale for that kind of grade., they can make money all day long. And so, that’s what we want to demonstrate with, with Crawford, know that we’re going to be able to build that kind of scale operation and generate those kinds of cash flows for many, many, many decades to come.

Matthew Gordon: Okay. Well, I appreciate your time today. I’m just, delighted for you, got the ball rolling and got the money in as well. But, you clearly know what you want to do and how you want to do it, which is fantastic. Now you’ve got to go and do it. So, yeah. Over to you. Stay in touch.

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Brandon Munro – Why are some uranium investors blaming Kazakhstan? (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (20.05.2020)
  • Market Cap: A$42M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

Kazakhstan is easing emergency restrictions in some towns but what does that mean for the resumption of production of uranium at KazAtomProm. Munro explains. Also, we discuss what pressure Kazatomprom may be under and from where? Plus, how is Russia coping?

The US Govt is trying to get their seat back at the uranium table, after years of neglect. Will SMR technology be their saviour, and if so how long will it take. This week saw a big announcement with regard to their ongoing Advanced Reactor Demonstration Programme. Big numbers being thrown around. Bigger the US Dept of Energy has indicated.

And what are the Chinese and Russian SMR technologies capable of? We talk about use cases and applications on land and on sea.

Cameco has restarted their Port Hope facility, which was expected by most, but some selling in the market means that perhaps not everyone was pleased with the news.

And, finally, a sober statement by the European Atomic group, EurAtom warns of lack of transport hubs to accept nuclear shipments, lack of investment in conversion facilities and a permanent reduction of uranium and withdrawal from uranium exploration. And commented on that utilities must diversify supply and continue to maintain appropriate 3-years of strategic inventory levels. We discuss what they mean.

We Discuss:

  1. Australia’s Successful Management of COVID-19
  2. Kazakhstan Easing Restrictions, Does That Mean a Re-Start of Uranium Production
  3. Russia’s Relationship with Kazakhstan and Possibilities of Influencing Uranium Producers
  4. SMRs: The Geopolitical Race, and the ARDP Report
  5. Conventional vs SMR: Costs, Locations, Infrastructure and People’s Perception
  6. Cameco’s Port Hope Announcement
  7. Selling at Market: What’s Happening with Equities?
  8. UR Atom’s Statements: Importance of Maintaining Inventories and Diversifying Supply

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Brandon. How are you doing, Sir?

Brandon Munro:  I’m well, thanks, Matt. What about yourself?

Matthew Gordon:  I’m good, but you look like you’re back in the office. Have you been allowed to?

Brandon Munro: Well, I am. Yes, things in Western Australia are going really, really well. We’re getting about one new case per week right now. So, we’ve decided to go back to the office and in fact, the government in Western Australia has told everyone to go back to work and has now made schooling compulsory again from next Monday. So, it’s nice to be back in the office.

Matthew Gordon: That’s fantastic. I hadn’t actually realised that. I spoke to my mother, like a good son should do, on, I think it was last Sunday, and she was saying, I didn’t realise this, but Australia’s had only around a 100 deaths across the board because of the policies that they have implemented. So, you have been managing this extremely well.  And, you know, because I do speak to a lot of Gold producers and others in Australia, and it seems to have gone quite well for you.

Brandon Munro: Well it has, in fairness, I think we’re assisted by just the way that we live in Australia. Western Australia is certainly benefiting from being very remote, and because of that remoteness we’re quite self-sufficient. So, closing the borders was for most people, just inconvenient: lots of loved ones being separated, you know, tragic stories, et cetera. A few businesses being affected by that. But in Perth, for so long, we’ve been such a long way from everywhere that it’s kind of normal. And where your mum is, I mean, Sydney and Melbourne, the States and new South Wales and Victoria, they have had a much greater concentration of COVID-19 cases and represented the majority of the fatalities as well. But they’re also bigger cities. They are denser cities. So, I think the combination of those two things and perhaps the really lovely warm weather that we’ve had has made the job a bit easier.

Matthew Gordon: It has. But we’ve got a nice segue here because Kazakhstan has ended the emergency and some restrictions as well, which obviously bodes well in terms of Uranium production. What is your take on that? Do you think they have come back too early? What do you know?

Brandon Munro: Well, based on the stats, the easing of restrictions seems appropriate. So, let’s just put to one side how solid those stats are for now. But Kazakhstan also benefits from being very low population density. Like Australia, it’s a very big country with a fairly small population. They do have more confined living, more European-style living, but they did lock down both in Nur-Sultan and Astana very, very early, and they closed their borders with China early. So, they took a number of measures that a former Soviet country can do quite easily in terms of the way that people are used to being regulated.

And so, where we’re at at the moment is, they announced it at the beginning of the week that the state of emergency has been lifted and a few of the restrictions have been changed. It’s less like a European lockdown and moving towards being a little bit more like an Australian lockdown. You can go and shop for things other than food now, for example. People can go back to offices if they need to, but we aren’t seeing any return to industrial activities. There’s still a lockdown of the regions there, and the report from the government and the comments from the president seemed to indicate that they’ll be reviewing that on a region by region basis. And as your audience would know, the regions that host the majority of Kazakh Uranium production were some of the earliest effected by COVID-19. So, I don’t see it really meaning anything for Uranium production and the resumption of wellhead development by KazAtomProm yet. It’s something clearly to follow. I think there’s possibly had an impact on equities this week with the headlines seeming to indicate that things are getting back to normal. But talking to people in Kazakhstan, it’s still a long, long way from that. It is the beginning of normalcy, but there’s still many, many steps that need to take place.

Matthew Gordon: Okay. And because if I look at some of the commentary in the marketplace at the moment, there’s a lot of adversarial, negative commentary around Kazakhstan: their impact in the market, the way that KazAtomProm playing this out. I know we’ve had conversations, and you know, you’re a believer and I know you have first-hand conversations with them, but you’re a believer that they are doing what they’re doing for all the right reasons. So, you don’t see them coming back anytime soon? Or do you think that they are going to be under some pressure from wherever to get back into production soon? Because, you know, as we said last week, oil revenues are starting to get bid.

Brandon Munro: There will be some pressure on them to come back soon, and when you read the president’s comments, and as you know I’m fortunate to have an in-house translator of Russian, so when you read the nuance of the president’s comments, they are obviously, like most countries, looking for industrial activity to recommence as soon as possible, but they’re also looking for stability of their currency. They are hoping that any forms of foreign currency can help to offset the impact of oil. So, on the one hand, you might say, look, that will create some level of pressure for KazAtomProm to come back, but you do need to remember that compared to what oil does for Kazakh foreign reserves. Uranium is still a tiny little blip. It’s very important to Kazakh pride because they have got such a dominant position in the Uranium market, but when it comes to dollars and cents or tenge, for that matter, it’s just a small little corner that doesn’t even register double digits when it comes to foreign reserves. And I think they will be very careful. It’s a big logistical mobilisation exercise here. They’ll need to get 22,000 people back operating to get this wellhead development going and they won’t want false starts. They won’t want to half-mobilise and then have, say, a second infection rate come from over the border, for example, one of two borders which are presenting a risk for them. And I think in the context of them having a good commercial basis for a continued shutdown, buffering those negative consequences to their operating business, I can imagine that they will take their time and make sure that they get it right.

Matthew Gordon: Okay. So it is inconsequential – Uranium revenues are inconsequential to the sovereign wealth fund, to the country as a whole; point well-made and well taken. But it does have a huge impact in the Uranium market, equity specifically. So, people and funds I suspect are going to want to see KazAtomProm not producing for some time because it will start putting more and more pressure – these lost pounds in the market is going to put pressure on. So can you, how long can you see them holding out for?

Brandon Munro: That’s how long is a piece of string in this situation. I mean, we could put on a white board, three great reasons why they should try and rush production back and three great reasons why they should hold off. And probably three extra reasons why the government would want them to come back and hold off at the same time, so there just aren’t any real indicators. I mean, one thing we should bear in mind is that their closest neighbour, both geographically but also culturally, Russia, is now going through a peak COVID phase. Their fatality rate is remarkably low compared to similar countries and countries that have a similar way of living. But nonetheless, they have slipped into third place, I think in terms of the total number of confirmed COVID cases. So, you’d expect that would be weighing on the minds of decision-makers, both government and industry in Kazakhstan. And as we’ve seen in other countries, it’s only a matter of weeks before we know if those Russian numbers have peaked and are receding and everything’s back under control. So, if I was making a decision whether it was a for a Uranium project or anything else for that matter in Kazakhstan, I’d be thinking, well, let’s give ourselves another few weeks and just wait and see how things play off on our northern border.

Matthew Gordon: Well, just on Russia, they have had 250,000 confirmed cases, and the official number is 1% but the numbers in Moscow, which suggest they potentially could be 3 times that, we won’t know for a while. And I suspect that Mr Vladimir Putin is struggling a bit because he’s, you know, obviously looking at some kind of constitutional reform process at the moment, and COVID-19 has come along and interrupted this somewhat. And I, you know, I’ve seen a few pictures of him sort of staring blankly at a screen trying to bark out orders and get things moving. But he, you know, he’s been isolating as well. So, I just wonder how much pressure Russia is going to be able to exert on countries like Kazakhstan? That seems to be a much asked question. Do you think that is realistic?

Brandon Munro: Well, I guess the question is, pressure for what ends? Do you mean on Kazakh Uranium production and making sure that they can access that production?

Matthew Gordon: Yes.

Brandon Munro: Yes, interesting comment, and you might have picked that up from some of the comments made by Grant Isaac from Cameco during the week where he pointed to his view, which I share, which is that Russia doesn’t have the domestic Uranium production, either mined production or from treating tails through their enrichment program, to power the full extent of their nuclear export ambitions. And for them, I think they’d be looking across the border at Kazakhstan thinking, well that’s okay. You know, we’ve got a long history of cooperation here. We’ve got a lot of shared cultural values. We’ve got a deeply integrated economy where Kazakhstan is still very reliant on Russian capital and Russia as an export market for other goods and so on. So, if I was Russia, I wouldn’t be feeling particularly concerned.

To their south, however, you know, I think the big question is for China, they have been able to buy pretty much whatever they wanted out of Kazakhstan so far. But if the Russian export program continues in the vein that it has so far, I think China will have to really start asking itself questions about how long and how much of that Kazakh supply that will be available to them over the medium to longer term.

Matthew Gordon: Okay. Well, I think people can look at that, and we’ll put links below to some of the conversations we’ve had over the past couple of weeks with regards to supply-demand. But today I want to talk about something else, which we’ve not talked about, which is SMRs. SMRs, again, it is that geopolitical race; be that Russia and China have got their designs, they each have got their own unique designs; land-based and floating. It seems there are some very interesting options there. And also the US this week has announced, well, I think potentially, it’s been going a while, but this week they made a bit of an announcement off the back, I suspect of the Nuclear Fuel Working Group Announcement a month ago, which is their ARD program, which is their Advanced Reactor Demonstration Program. So maybe we should start with the Americans first, should we do that? ARDP – so what’s that all about?

Brandon Munro: So, I think it is off the back of the working group report, and in fact it was, that report was cited in the press release. So, what they have said is they’re making available USD$230M to try and ensure that there is an American SMR, small modular reactor, technology in commercial operation by 2027. They have allocated a proportion of that to fund programs that are able to get a reactor in operation in five to seven years, in commercial operation. So, if we take a step back, and we have talked about this, but probably not in the last 12-months, America was leading the way when it came to SMRs, they had multiple viable SMR technologies, not just a couple. And because of, I suppose, the industrial capital roots of how American technology is developed, there were lots of competing companies including some very high-profile ones such as Mr.

Gates, and they all had their different technologies, which were all competing, essentially, only against each other. The Canadians had a design, and there were a couple of other designs around, but it was really an American race.

Then what we saw was the Obama administration turning its back largely on nuclear and the relevance of nuclear technology and in favour of a number of different technologies, but predominantly looking to position America in the renewable race and electric vehicles and so on. It was only when Rick Perry came as Secretary of Energy under the Trump administration that we saw some serious revival of these programs. There’s been a number of small funding grants made available. In fact, there was one last week for, I think, USD$27M for some sort of a switch that I don’t even understand that does something clearly important because they’re putting USD$27M towards it. But that’s an example. There’s lots of this going on, but this is the biggest and the boldest and certainly the largest number that’s attached to it. And it has attached a timeframe, which is quite clearly a call to arms that they want to have nuclear SMR technology capable of domestic and international deployment before 2027. And that aligns very well with the various comments made by the Department of Energy, which were summarised in that working group documented a couple of weeks ago.

Matthew Gordon: So, this feels rather like a giant science fair. They’re trying to identify a technology which is obviously proprietary to the US itself, and presumably they will come down hard one technology or another, and there are people who will insert themselves into that food chain along the way. But USD$230M is not a lot in the context of things. It sounds like a lot because the Nuclear Fuel Working Group, you know, they talked about USD$150M a year, and we don’t know where that’s being allocated. Isn’t it time for the US to start joining up these programs? Start to, you know, do what I think the Nuclear Fuel Working Group, we’ll call it a policy document, because I think some people are branding it, a policy document that shows intent, isn’t it time they sort of brought all of these departments, agencies together, and consolidated their budgets because it’s just all a little bit piecemeal, isn’t it?

Brandon Munro: I think the government approach is really reasonably centralised. You have got the Officer of Nuclear Energy that sits within the Department of Energy, and it has been really the dominant supporter in all of this, and they have done a good job. You know, when you consider that they inherited a fairly stale agenda from a Democrat Administration, I think they’re doing a good job. But your point about, is the broader interests of US nuclear technology better served by 2 or 3 competitors who have pooled technologies and pooled resources, rather than having an array of competitors competing for intelligence, competing for technology, competing for markets, et cetera. You know, that’s a debate that’s even being had at a conventional scale nuclear reactor table. And really the Western world, if it’s got a legitimate chance of fully competing with Russia and China on conventional nuclear reactors, they’re going to need to get together and have a standardised nuclear reactor in exactly the same way that China only exports in markets one single reactor of a one gigabyte scale. That’s the one on one. There is also the cap 1,400 which has a larger scale that’s designed to compete with the bigger EPR that France makes.

But the issue is the cost of getting design approvals; even generic design approvals run into the billions in key markets. And the confusion and just the difficulty for regulators of choosing between all of these different designs means that it slows down the process and it makes even a procurement exercise very expensive for governments, and almost prohibitively expensive for private power concerns. So, Russia exports a single reactor design. China essentially exports a single reactor design in the one on one, and this –

Matthew Gordon: Okay. So let me ask, so Russia has been out there for some time, China has been at there for some time America, it looks like it’s just starting the process. How long is that process? When can America start to genuinely say, we’re back at the table, guys. We’ve got a solution here which we think we can commercialise and we’re going to start doing that.

Brandon Munro: I think it is going back to the table already. If you look at some of the technologies that have continued in the meantime, they have continued to maybe not prosper, but they’re certainly as private enterprises, continued to push forward. And we’re seeing that, for example, in Australia where the nuclear power debate is fully restricted to SMRs-only, for a couple of probably pretty good reasons. And there’s one SMR reactor that had the best chance of, I think capturing the debate here because its audio visuals were superior, and it was the most advanced. And so, they’re definitely a front runner, but there are others as well. And of course, Bill Gates has used his profile to capture the imagination for their particular product.

What was slowing the US down was predominantly the availability of sites. And they are addressing that. They don’t need money to the same extent to do that. And that’s not such a big issue for China and Russia. And for example, China has already selected a couple of sites for their Agile Dragons that they plan to do –

Matthew Gordon: Nimble Dragons.

Brandon Munro: Your dialogue of Chinese must be slightly different to mine, Matt.

Matthew Gordon:  Cantonese I’m going with, yes. Cantonese every time. But let’s talk about, I just want to remind people why SMRs are being considered as part of the future here. It’s going to come down to pricing, timing, mobility and tying into infrastructure. Why don’t we talk about some of those things? Pricing – conventional versus SMR.

Brandon Munro: Okay. So, first of all, they aren’t necessarily better value per megawatt of power produced. That’s something that remains to be seen. The hope is that they will be, because they can be produced in larger numbers and they can be produced in a factory. But the point is that they don’t require such a large absolute capital commitment. You don’t have to commit tens of billions of dollars to build a large scale efficient conventional plant. You can nibble away with hundreds of millions instead. And that will make them more competitive to, for example, renewables, that have been implemented in a smaller, more piecemeal fashion. But the factory production is really important here because it goes to several things that have slowed down conventional nuclear power. The biggest one is the perception of delays. There have been delays but they are mainly associated with first of a kind construction. And as we all know, the first motor vehicle of a new range takes several years to develop and once they’re in full production, they take a couple of days, and there’s been an element of that. There has also been a lot of lawfare that has slowed down the construction of conventional nuclear power plants. And also, just the availability of contractors that have got the skills and experience to construct what are still relatively unique and very, very large construction processes.

So, an SMR, the best of them are designed to be built in a factory, transported via conventional means to the site, and a relatively small amount of site works to be done. And that reduces, obviously the construction time risk. It reduces financing risk. It reduces the effectiveness of lawfare tactics by antinuclear campaigners. The fact that their footprint is so much smaller means that they can be built closer to urban centres. They’re less likely to evoke the emotions of interest groups and so forth. So that’s in itself a big advantage.

Matthew Gordon: Talk to me about that because you know, these are much smaller footprint projects true, and that the cost is significantly less, significantly less, but it still needs to be tied into an existing infrastructure. And you’ve just said these could be near or in urban centres. Do you think, emotionally, people are going to want a nuclear facility smack bang in the middle of their city?

Brandon Munro: It doesn’t need to be smack bang in the middle, but you don’t need a 50km exclusion ratio from one. Now, we know that you don’t need that from a well-placed, conventional nuclear power plant either, but it’s hard to convince the populace of that. There are many examples around the world where communities have asked for nuclear facilities to be placed near to them. Sometimes, like in Scandinavia, for as pragmatic reason as they don’t want to commute 50 kms, let alone build the power infrastructure for an unnecessary 50 km carriage of electricity. But just their scale, their design, their enhanced safety features and the fact that they’re totally different to the 1st and 2nd generation nuclear power plants that have had problems at Third Mile Island, Chernobyl, and of course, Fukushima.

So, but I tell you where their most interesting applications are; I think the best, most fervent case for SMRs is immediate, hand in glove, displacement of coal power generation. And that’s because you can pretty much match them up with your existing output of a moderate sized, coal-fired power station. And all of that electricity infrastructure’s all there. It doesn’t need to be rebuilt. It doesn’t need to be replaced. And in a manner of speaking, you could turn the coal station off one day and flick the switch on an SMR the next. And compare that to, let’s just say renewables for example, or hydro, or a large scale, power program that needs to be implemented; you just can’t use the existing grid infrastructure in the same productive way as you can by displacing coal with SMR nuclear.

Matthew Gordon: That’s interesting.

Brandon Munro: The other really interesting case is for remote applications. So, remote industrial applications such as mining centres, and Russia has one of those ear marked for its first land-based SMR. Remote towns, for example, certainly for military applications. So, the US is looking at not only small but mobile reactors so that they can establish a power system for their various campaigns. A highly localised power system that has all sorts of strategic advantages over other forms of power that they would use in that situation. And the big variety that we’ve got of SMRs in the pipeline, there are everything from tens of megawatts up to the sort of modularity that can achieve an entire gigawatt of power as it’s needed. So, there’s a new market for them. And when you look at remote applications that might otherwise be relying on, for example, diesel, there’s a very, very, very strong social, environmental and economic impetus for those types of solutions.

Matthew Gordon: Nice. It’s an absolutely fascinating space in terms of, well, I’m interested in how it will turn out, what those applications are. It’s, you know, they will package it according to the needs. They have got the ability to package it according to the needs. I was reading an article with regards to the RITM 2000, the Russian technology, which that kind of led on to this kind of floating power source. Now, that makes me nervous – ships at sea with nuclear power. Surely that’s a recipe for disaster. That sounds like a really good or bad Hollywood movie happening right there. So what are, because you touched upon it earlier; you said that they have enhanced safety features. So what are those enhanced safety features?

Brandon Munro: Okay. Well first of all, let me challenge your natural fear of floating nuclear reactors for a moment. Because we’ve had extensive nuclear reactors at sea since the advent of nuclear power, through predominantly Naval use. So, the Russians have maintained a fleet of nuclear-powered icebreakers as well because of their power requirements. And so, I think the US operates still 74 micro-reactors for their Navy. Russia doesn’t have quite so many, but they have got more diverse applications, and to my knowledge, and certainly to public record, there’s never been a single incident on any of those. Obviously, Naval ships had had other related incidents and they have had nuclear fuel on them but as far as we’re aware, of the world at large, that’s never created an issue at all. So, there is some precedent, very significant precedent for reactors operating safely at sea. And I could parrot some of the things that have been told to me by the technical experts about why flooding reactors are far safer, or have got simpler safety features to a land-based one, but I think what it comes down to is, it’s two things to do with safety and SMRs. The first one is the real safety features and they have had the opportunity to dramatically rethink all aspects of the production of nuclear power to craft the next generation of technologies here. And in that respect, they have eliminated to effectively zero the potential for accidents and the potential for radiological risks here. And everything that you can think of is included in these reactors. Now, in fairness, that’s the case with the Gen 3 reactors as well, they’re just at a larger scale. So that goes to the second point, which is the perception of safety, and in the nuclear sector to win the hearts and minds of some countries such as Australia, you really need to come out with something different, so, we aren’t talking about why Chernobyl could never happen in Australia, we finally can say that’s a completely different technology. You’re trying to liken a modern nuclear power plant to the Great Fire of London, for example. You know, it’s a dramatically different technology where a comparison just isn’t valid or fair. And whilst technically I can tell you that that’s true for a Gen-3 conventional nuclear reactor, it’s very hard to make that argument for someone who doesn’t spend a lot of time looking at the science of all of this.

Matthew Gordon: Okay. SMRs – very exciting. We’ll put some links in the commentary below and hopefully people can get into it. Get into the detail. Cameco, this week, I’m going to pat ourselves on our backs with regards to Port Hope – they made an announcement this week.

Brandon Munro: Yes. So, they’re returning Port Hope to full production. They want to be back at it fully by the 25th May. And I think what you’re referring to is that we both sort of deduced that as being quite likely from both the tone and the commentary of the Cameco quarterly results. If I remember correctly, we made the observation that the way that Cameco was talking about Port Hope and Blind River was very different to the, the words and the tone that they were using to talk about Cigar Lake, and we didn’t expect that that four weeks would carry on any further. And so, as it turns out, it hasn’t. And I think what we can glean from that is interesting for what it talks to their intentions behind Cigar Lake. First of all, the way that they described that shut down at Port Hope in the first place was very different. They were keen to get the message across that it was a pre-emptive move. It was to put it in their control. They didn’t want to be turning it on or turning it off. They used language like, ‘these industrial facilities don’t like being turned on and off, and particularly at short notice’. And they made a plan to bring forward some of the summer maintenance program that they otherwise would have had to undertake. So, right from the beginning the language was very different at Port Hope. And then the update that we had with the quarterly report was, the results, was also along those same lines compared with Cigar Lake where I think Tim Gitzil was, you know, genuinely quite upset about the outbreak that had happened at La Loche, which is a first nations community close to their operations in Saskatchewan where I think he said on the call there’d been 50 new cases reported in one day, and he acknowledged that they had employees from that community, and clearly they were all feeling that concern for that community. So, I don’t think Port Hope is any sort of indicator of what may or may not happen at Cigar Lake because they have been characterised very differently from the beginning.

Matthew Gordon: Yes. I was actually quite impressed with their quarterly call. It feels like a company in control. They know what they’re about and how they’re going to get there responsibly, genuinely responsibly. Because again, when we get this feedback, people try and read into perhaps too much, read into the intent. And we get a lot of commentary about KazAtomProm and Cameco controlling the market, controlling pricing in the market, which again, we’ve discussed at length on numerous occasions. I don’t think it could be further from the truth.

Brandon Munro: I agree. They are a responsible company that is doing things for the right reasons.

Matthew Gordon: Yes, absolutely. Now, a little bit of activity in the market this week – there was a bit of selling. There’s a few, I’m not quite sure why, some people said that it might be fund liquidating their position or taking advantage of the price in the market. Have you got any thoughts as to what happened?

Brandon Munro: As far as the equities are concerned, I don’t have a good feel for what’s happening. I’ve got a couple of wild theories, or rather not so wild theories. And if you look at the bounce that Uranium equities have had, they have oversold quite deeply but that was in common with just about all speculative resources stocks, particularly when I look at my watch lists across other commodities, even technology and so forth. But they did make quite a good recovery. I expect with a spot price that’s flattened now, it has come back a little bit. There’s probably some people who bought the dip and who are now taking profits and that doesn’t surprise me. We haven’t seen such big volumes, not in the stocks that I follow, anyway, that indicate a big level of fundamental selling or fund selling. Maybe you’re seeing it differently in some of the other stocks, but I haven’t seen anything that would indicate more than people just going, you know what? On 100% percent of my money in a few weeks, spot price has flattened, it has come off a few cents. Maybe I should just take some of those profits and see if we see more volatility.

Matthew Gordon: I think that’s right. I think that’s right. And that is what we did, you know, the price has levelled out again. I don’t know, I’m not seeing much movement anytime soon in that. And I think, you know, a few people called that: yourself, Dustin Garrow called that. Until something meaningful happens in the market, I don’t think this is going to move one way or the other anytime soon. But we shall see. We shall see – the great famous last words. I don’t want to talk about that with us today, but I do want to make, I just wouldn’t mind your observation on it – Euratom – they made a couple statements. I mean some were a bit obvious and some that surprised me. They talked about a lack of transport hubs, a lack of investment and permanent reduction. So, you know, those comments in the market, I mean, did you any of those surprising? Why did they bother giving that statement?

Brandon Munro: Yes, look, I mean, I didn’t find any of it surprising, perhaps I’m not the right person to ask. When I looked at the report, I think I deal with about half of those people through the World Nuclear Association Working Groups. So, all of these factors I’m quite close to because of what I’m doing there. But to put some of those things in a bit more context, so for the audience, this is basically a security of supply report that is produced each year. It’s not the inventory report that people are looking forward to. We’ve got a couple of weeks before that comes out, although it did make a broad-based comment on inventory where as I expected, and as most people would know in very broad terms, the average level of inventory held by EU utilities is 3-years of supply, and that’s been fairly consistently the case.

And in fact, Euratom imposes legal requirements to hold minimum levels of strategic inventory on its members. And so, the transport issue: they were identifying risks rather than problems that are here today, and so it needs to be looked at in that context. The transport risks, what they talked about is political interference with ports and transport routes to enable the carriage of nuclear infrastructure, whether it’s power, whether it’s waste, whether it’s components, whether it’s construction, et cetera, et cetera. This report was focused more on nuclear fuel, but there is some risk within the EU that interest groups, political or otherwise, they’ll start interfering with that. So I think it was quite appropriate that Euratom get that out in the open, put it in front of policymakers, warn them of the consequences, and they didn’t take the next step, which I think is to do a little bit of lobbying in favour of nuclear transport. I think there’s been 11,000 transportations of nuclear fuel without a single incident in the EU, so that’s pretty good going over a few decades, and a few more people should know that statistic. But I don’t see any present-day concern that that will stop reactors operating, but it’s an increasing challenge that they need to face up to.

Matthew Gordon: The one thing I did take note of in that, sorry to interrupt you, Brandon, was the average inventory levels in Europe of 3-years. And I couldn’t quite work out from the language use whether that was the case now, in which case, we’re looking at utilities sitting on 3-years’ worth of inventory, which is a big clue, or it is suggesting and making recommendations that that is the case.

Brandon Munro: They have traditionally held between 2 and 3 years of inventory. I guess we’ll know the answer to that. I’d have to go back to the report and have a place to look at it now that you raise that, we will know the answer to that in a couple of weeks’ time. It was the, you’re right, the comment was made in the context of holding strategic inventory is a key mitigation that all EU utilities must maintain both to disruptions, potential disruptions from transport that we’ve just talked about, but also, for the 2nd year now, they shone a light on disruption, future disruption of production, lack of investment, they talked specifically about the production of Uranium going offline and not coming back on again. So, there’s a degree of recognition there of the remarkable decay curve that we have in the world’s current Uranium production out there. So, that strong message coming through there was that European utilities would be very unwise to deplete their current levels of inventory. And it’s obviously a message for other utilities in the rest of the world as well. And that goes to what we’ve talked about before, which is whatever causes utilities to stop under buying and destocking their inventories will bring a fairly rapid price response in the Uranium market.

Matthew Gordon: Absolutely. And I think the one other point, and we’ll finish up on this, because I think you’re right – in a couple of weeks’ time, when there’s a bit more information in the market, we should come back into this. But the other thing they talked about, and I don’t think it’s going to be new news to utility buyers, is diversification of supply for, partially because of the reasons we’re talking about here, but also dependence on any one major supplier could be problematic for them, not just physically but geopolitically in this current environment.

Brandon Munro: And it’s worth reading up as well on this point because diversification of supply is one of those things that everyone’s been aware of. But not concerned by over the last few years until quite recently. And for utility buyers, it’s almost like, oh yes, we know we should be diversifying supply, but while prices are this cheap, we can probably stretch that rubber band a little bit. So, the importance of diversification has been a little bit lost in a low price environment, both from a sort of a bargain hunting perspective, I mean people who like a bargain will look past lots of flaws in something if they’re getting it at half or a third of the price that they paid recently. But equally, low prices indicate lots of availability of supply and you don’t feel the risks of an undiversified portfolio in the same way.

So, the language has really changed in this report. It’s recognising, without naming, the various geopolitical tensions that are going on in the marketplace and its timing, straight after the report of the working group, it probably would have been finalised and ready for publication before that report was released. But there’s been plenty in the lead up to the Department of Energy report that would give them the clues and the signals to what would potentially be coming, whether that’s Iran sanctions, the Russian suspension agreement or just an elevation of geopolitical language and rhetoric that’s creating potential supply disruptions here. So, all good, solid advice for European utilities and the utilities, the world over which ultimately will benefit Uranium production.

Matthew Gordon: Yes, and I think that the American producers will be banging that drum loud and clear too, because I think their argument is buying cheap is a kind of false sense of security. You know, it may be good now, but it’s causing them huge difficulties in the long run, potentially. Well, that’s a topic we should get into I think in a couple of weeks’ time. But Brandon, great weekly catch up and thanks for explaining it. I mean, I’m fascinated by this SMR. I’d love to talk to you more about that, the SMR technologies out there and how that plays out.

Brandon Munro: Yes, it’s a big topic. It’s an interesting topic. It’s a moving feast and it’s one of the real big opportunities in nuclear power for winning hearts and minds. And we didn’t even get on to talking about fast breeder reactors, which recycle their own fuel. So, we’ve got something up our sleeve for another slow week.

Matthew Gordon: So that sounds like, well, yes, I think we will have another few slow weeks so we can take advantage of that. Well thanks again. You had better get back to, you look like you’re at work. Is there anyone there or are you by yourself?

Brandon Munro: No, no. Everyone has knocked off, it is a Friday afternoon after all and it has gone five o’clock. I’ve still got a report to get to the board, so I’ll be here for a little bit, but I’m not complaining, it’s just so nice to be here in a quiet environment.

Matthew Gordon: I bet. A change is as good as a rest, right?  And what, I always ask you this on a Friday now, so what is your wine of choice going to be the evening?

Brandon Munro: Oh, you know what? I haven’t even thought about that, but I haven’t drunk any red this week. I’ve been quite busy and so the extent of my indulgence this week has been nicking a glass of white off my wife. So, I reckon, I have a decent 2011 Shiraz Malbec, produced in the geograph wine region of Western Australia by the most incredible people called Barrecas winery. Beautiful, beautiful people. It’s a husband and wife team. They do amazing things with wine and everything else. , I reckon I might phone ahead and ask my wife to just take the top of that for me and get it breathing

Matthew Gordon: Sounds good to me. Sounds good to me. Fantastic. I think I might go for the Lebanese tonight. I think I’ve got a cheeky 2001 Chateau Musar, I think it is got my name on it. It’s a bit early to be talking about that right now, so I may change my mind during the course of the day, but that’s what I’m planning.

Brandon Munro: Yes. Yes. You’ve got time on your side. If I’m going to get a bit of oxygen into that bottle, I’ve got to make a decision fairly soon.

Matthew Gordon: Well, I’ll let you go and do that. Brandon, thanks so much. We’ll speak to you next week.

Brandon Munro: Yes, great. Thanks, Matt.

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A photo of Bannerman Resources CEO, Brandon Munro.

Brandon Munro – Kazatomprom’s Strategies for 2020 (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (14.05.2020)
  • Market Cap: A$40M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

Munro is back. What pearls of wisdom does he have to share for uranium investors this time around?

It’s been a week of calm, contemplation and reflection in the uranium space. Uranium investors have been able to take a breath after an extremely eventful period. Munro states he has a range of supply curtailments, with Kazatomprom announcing there will be at least at 10% disruption to 2020 uranium production, which is already operating at a significant deficit. As part of his work for Bannerman Resources, Munro has seen a slight relaxation in lockdown policies in Namibia. He is just starting to see the mines get back “into a semblance of normal production.” He believes Namibian uranium mines will struggle to hit their optimal numbers for several months, and this punches another big hole in the supply side of things given that Namibia is the fourth-largest uranium producer in the world. Cameco’s Cigar Lake is still down indefinitely.

One thing that has happened this week is Kazatomprom making a few statements. Let’s dive into them.

‘Kazatomprom will NOT attempt to make up the tonnage from COVID-19 production cuts once they return to full operation.’

This cements the uranium production volume decreasing by up to 4,000 tU. This is meaningful because is turns Kazatomprom’s supply deficit from a worry to a definitive concern for utility companies. These pounds aren’t coming back into the market. Sorry, uranium bears.

‘The production impact will affect each partner in different ways, which will vary over time.’

Kazatomprom’s disrupted production has created uncertainty in three dimensions: absolute volume, the impact of time on volume, and the impact on each partner and the relationship this has with their commitments. The immediate example that springs to mind is Cameco VS Orano VS Uranium One. If this supply disruption stretches out longer than 3 months many companies will come under immense pressure.

‘The disruption is a force majeure event under their sub-soil use contracts (ie Mining Licence).’

This takes away Kazatomprom’s ‘pinch point’ when it comes to reducing its production levels below the 20% corridor detailed in its mining licence. Kazatomprom has a big strategic advantage over uranium producers who rely on Kazakh JVs rather than a portfolio of assets e.g. Inkai – Kazakhstan (40% Cameco: 60% Kazatomprom).

‘KAP will honour its deliver commitments and will not use this as a force majeure event.’

This will support stability and will avoid utility companies getting caught short in the next 12 months. However, long-term it will allow pounds to continue to be depleted out of uranium inventories.

‘KAP holds sufficient inventory to meet “lost tonnage in the short term” but will, if necessary, purchase material in the market to meet deliveries.’

This is the leveraged impacts of further delays, and things are going to get interesting if the delay stretches beyond the current expectation of three months.

‘Production might be disrupted into 2021 as “ramping up the mines will be a well-planned process over several months.”‘

Connect the dots, uranium bulls. The picture should be becoming very clear now.

‘Exploration and development work will be delayed for some time.’

Kazatomprom has been underinvesting in exploration for a while now. This just further paints the picture of uranium supply falling even lower.

‘The carry trade is looking “increasingly obsolete.”‘

Cameco endorsed this comment earlier last week. It’s an arrow to the heart of utility companies and their purchasing habits. Producers aren’t accepting this any longer.

What did you make of Brandon Munro? Comment below: we will respond.

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

We Discuss:

  1. Quiet Time for Uranium: An Overview of the Space
  2. Kazatomprom Won’t be Making Up Tonnage After COVID-19: Impact and Reasoning
  3. Partner Relations and Interaction
  4. Sovereign Wealth Fund: Assessing the Shareholder Relationship
  5. Benefits of Force Majeure: The Extraordinary Event Clause in Contracts
  6. Delivery Commitments and How They Will be Enforced
  7. Disruption to All Stages of Production: How Will This Affect the Market, Companies and Will it Leave a Lasting Imprint?
  8. Levers of Power: Possibility of Manipulating Uranium Spot Price
  9. Carry Trade to be Absolete: Reinvention of Traders
  10. COVID-19’s Impact on Nuclear Energy Demand
  11. Timing on Change: What’s Next to Look Forward to?
  12. Announcement: Australian IMM Uranium Conference

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon, how are you doing, Sir?

Brandon Munro: I’m well. How are you, Matt?

Matthew Gordon: Very good. Been a long, long week, or it feels like a long week. Now, usually we have had a really good run of it for the past six weeks and this week has been quite boring by comparison. It’s still good but a bit boring by comparison.

Brandon Munro: I think we needed a breather, didn’t we? We needed to consolidate and think about all of these things that have happened in the Uranium sector, and this was the week to do it.

Matthew Gordon: Time to think and reflect and think about our attitude to the Uranium space. Well, the one thing that did happen this week; Kazatomprom made a few statements, and I want to talk to you about those. There’s some points they made which I think are quite important. What’s your overall view, first of all?

Brandon Munro: Where we’re at in the Uranium sector?

Matthew Gordon: Yes.

Brandon Munro: So, I think it’s still very positive. We have got a number of supply curtailments. So for any of the viewers joining us for the first time, we have had a range of supply curtailments, and even Kazatomprom acknowledged in their report that came out this week, that that’s going to be at least a 10% disruption to 2020 Uranium production, which according to my numbers is already working off quite a substantial deficit.

And we haven’t seen any of those curtailments really start to emerge in any substantive way. In Namibia we have seen a relaxation of a number of the different lockdown requirements, but we’re only just starting to see the mines get back into a semblance of normal production. So that’s right at the beginning of getting back into it, and I still believe that they’re going to struggle to hit their production targets for the next couple of months at least. So, there’s a fair hole in production that’s been punched into Namibia – the fourth largest Uranium producer in the world.

Cigar Lake is still down. And as we know, that’s going to be down for quite some time. And there’s been a number of outbreaks in nearby communities, one of which was even acknowledged on the Cameco earnings call last week. And so that’s really given a lot of reason for contemplation and created a pause in the thinking of many people who thought that perhaps Cigar Lake was going to come back on sooner rather than later. And there’s associated publicity around those very tragic outbreaks in those remote communities that neither have the infrastructure capacity to deal particularly well with this type of a crisis, and also have a large component of indigenous residents who are expected to be particularly susceptible to a virus like this. That has created a lot of publicity, which we’ll just again, give Cameco further reason to make sure that they put the health of their workers, their families and their communities first before any desire to bring that mine back on in a hurry. And then of course, in Kazakhstan, we have still got the production disruption wearing on, and speaking to colleagues in Kazakhstan during the week, everyone’s still working from home. So, as we stand at the moment, there’s no sign of that coming to an end.

Matthew Gordon: Well, let’s talk about Kazatomprom, because there’s some statements which were, I think you said, so carefully crafted; every word is important. And I’ve got 9 here for you to go through, and I think it’s worth doing that.

So, they said, ‘We will not make up the tonnage after COVID-19.’ What are the implications of that and why would they not do that?

Brandon Munro: Yes. So, for the listeners, these comments have come from an interview that Mr Pirmatov, the CEO of Kazatomprom, gave to UXC. And what’s great for everyone out there is that Kazatomprom have put it on their website. So, it’s in the public domain. It’s not just UXC subscribers who’ve got access to this information, and it is well worth a read, 2 or 3 times, because I think it does make a few very important statements. So yes, they have confirmed in the interview and they reiterated this point in their results that came out a couple of days ago that they will not seek to make up the lost production, and in their results, they also said that 2021 production will remain at 20% below their targeted production, which is the production that they commit to under their sub-sell or use contracts, which is the Kazakh equivalent of a mining license. So it’s important for two reasons: one is there was some thoughts amongst either hopeful people on the buy side of Uranium, or the more bearish commentators in this sector that ah, you know, so what, they go down a little bit, they’ll just bring all of that production straight back, and by the end of the year it’ll all be filled in and it’ll be back to normal. Well, they have absolutely made it clear that they won’t be doing that now.

What lies below that decision I find particularly interesting; on the one hand, it’s going to be tough for them at the best of times to get production back in, and they have got 22,000 people that they’re going to need to get back to work and get back to their wellhead development, plus contractors and so on. It’s no mean logistics feat working across a big country, diverse sites. It’s just a difficult thing at the best of times to get, once they’re able to, to get all of these mines back to production. And we’ll probably talk in a moment about it, but there’s a lag associated with in situ recovery mining. It’s not like an open pit mine where as soon as you start putting material through the processing plant, X days later you have got it coming out the other end as product, there’s quite a cycle involved in situ recovery.

But the other thing, apart from just the logistics and the difficulty of doing it is, I don’t think they would want to put those pounds back into the market. They have been committed to a market-centric approach and they have had to beat that drum for a few years because there was a lot of well-founded scepticism, I think you could say, about their market-centric approach as they started to tell the world that that’s what they were all about. Then they listed, then they started making commitments to the London Stock Exchange, which they have by and large kept, and they have stayed out of the spot market again, much to their scepticism of many people here. So, they have shown discipline on the sales side. They have shown a market-centric approach and they haven’t to date been able to reduce their production by any more than the 20% reduction. And that’s just a feature of the sub sole use contract regime in Kazakhstan.

They’re allowed to go within a corridor, either 20% above or 20% below what they say for each of those assets they’re going to produce over the life of mine. The moment they go outside of that corridor, they have effectively got to renegotiate those sub-sole use contracts with the government. And you know, it’s still quite a bureaucratic environment and nobody, even if you are 85% owned by the sovereign wealth fund of the country, you still just don’t want to go down that path. And the impression that I certainly have got over the last year or so, talking to executives at Kazatomprom is that they have gone to the minimum production that they can without going outside that corridor, but they wish they could do more. And now that wish has been granted.

Matthew Gordon: Okay, well, let’s talk about the partners who need the pounds which are produced by Kazatomprom, because this affects their bottom line, affects their ability to deliver against contracts. And then let’s talk about that sovereign wealth fund because they are all in a very difficult place at the moment. So, let’s start with the Camecos and Oranos of this world, please.

Brandon Munro: So, Kazakh production is very important to Cameco, Orano, and in particular Uranium one. It has become more important to Cameco and Orano as they have lost two other flagship assets: first of all, McArthur River, that Cameco put into care and maintenance almost two years ago. And Orano had a minority share in that asset as well and a minority right to production. And now of course with Cigar Lake being put into indeterminate care and maintenance, again, with Orano having a substantial minority share of production, Cameco has lost all of its primary production and what remains is its minority share in the Inkai joint venture, which is a 40% production share.

So as that production starts to deplete, Cameco will lose its last source of primary production, and we heard them talk about that last week on their call. And they have obviously got a strategy for that, which involves acquiring pounds in the market and from other sources.

Orano equally, they’re tapering down their production in Niger. They expect to close, it’s coming out next year and it’s already reduced production. So, they were counting on the pounds that they were getting out of Kazakhstan. And Uranium One is these days, almost entirely responsible to Kazakhstan for obtaining its pounds. So that puts them all in quite an awkward position. And it puts Kazatomprom in an advantage position because they have got a portfolio of assets. Some of them they own outright, most of them, they have joint ventured, including to CGN at Summers Bay. But, even though production will be reduced, they’ll still be getting production from, some level of production from all of those assets for at least the next few months.

So, the question becomes, they have adopted a market centric view, they have demonstrated the first level of that ‘market-centricity’, or whatever the word, is how market-centric do they become? How aggressive do they become with their competitors? Partners? Are they in a position to pull any leavers on their partners? And would they even contemplate doing that? And that’s something that’ll unfold over time. And those effects will very much depend on how long these assets are down for. Will they be down for the 3-months that Kazatomprom estimates? Will they come out of lockdown a little bit earlier and they’ll be able to retrieve some of that lost production? Or will it stay off for longer? And if it’s that scenario where it stays off for longer, I think we’ll really see some quite profound effects on the market.

Matthew Gordon: And the last bit of that question was, you have got the sovereign wealth fund there who has a different set of drivers and outside influences, which means that they probably have, for different reasons, they want to see pounds being produced.

Brandon Munro: Well now, that’s interesting. So yes, you’re absolutely right. They do have different drivers. So there’s still the 85% shareholder in Kazatomprom. Kazatomprom has been declaring extraordinary dividends in terms of total profit distribution. And one can only assume that that is to meet the requirements of its major shareholder. And those requirements, when you look at the impact that the current oil chaos has had on the overall levels of income through Kazakhstan and in particular their sovereign wealth fund, you would expect that that mouth has just become an awful lot hungrier to feed. But does that mean extra production? Now, ordinarily it would, but what’s interesting is if you look at this decision that Kazatomprom has made and you look at what it’s done to the spot price and you realise that their revenue is all according to spot, and you can see it from their results, very much tracks the spot price; their profitability has gone up. They’re going to lose by their own estimates, about 20% of annual production, but yet their margins have probably doubled, perhaps even more as a result of this.

So, this will be an interesting lesson in commercial reality and markets for their major shareholder who might not have been confronted with a situation where they can lose production and yet have their overall levels of profitability go up quite substantially.

Matthew Gordon: That’s interesting. Because, I think for people that don’t know, Kazakhstan is a huge oil and gas country – huge. And it’s very dependent on it, obviously with what’s going on at the moment it has been quite disruptive. And I just wondered if you had any thoughts or insight as to the types of conversations that could be had with a company which is semi-public? Well, partially public I should say.

Brandon Munro: Yes, look, I don’t think I’ve got anything that’s particularly insightful. I don’t know the people at KazNatSamruk. I’ve read a lot about them and there’s been quite a lot of comments about their privatisation plans and so on, but when it comes to how they’re going to react to this, it’ll just be interesting to see and follow.

Matthew Gordon: Okay. Now, they’re obviously using, or talking the language of treating this as a force majeure. What is the benefit of them doing? Does it matter what you label it?

Brandon Munro: So, force majeure, when it comes to their performance under their sub sole use contract, we should clarify that because they also made it very clear that they won’t be calling force majeure on their delivery contracts of Uranium to their customers. So, being a force majeure under the sub sole use contracts is important because any lost production as a result of this event does not count against them in terms of their commitment to deliver the production volumes under that mining contract, +/- 20%, as we have talked about. The secondary implication of that is that it’s a once off opportunity for them to decide or have a degree of control over exactly how many pounds they really wish to produce this year. And the decisions as to when to bring this production back on, as we have seen with Cameco, the decision to turn off, they might’ve had their hand forced by world events, and in particular of events within the country. But the decision to turn on, well, that’s going to turn on a whole bunch of different factors that are ultimately inside the control of the company. So, this is an opportunity for them to consider holding off a bit later than they might otherwise do and allowing the market to tighten further, allowing further inventory levels to fall, and perhaps testing really effectively how much mobile inventory there really is out there.

Matthew Gordon: It’s interesting. And they have also talked about being able to honour their existing contracts, and they’re in a lucky position to be able to do so. Do you think they’re going to be able to do that, and if so, how?

Brandon Munro: Yes, they will. I think they will. And the one piece of information that came out in their results this week is that they forecast, or they provided information on what their delivery commitments are. So, depending on the scheduling and the timing, it looks like that they will draw down their producer inventory by about 3,000t of U308, so, a significant draw on their inventory.

When they first flagged these disruptions, they noted that they had about 8Mlbs of producer inventory, which is a bit more than they really wanted. But they do target, like Cameco six to seven months of production. So, they look like they’re going to draw that down to about where they want it to. And that’s reminiscent, I suppose, of when Cameco initially put McArthur river onto 10-month care and maintenance, when they furloughed their workers and they decided that they’d work off inventories for a period of time, and they stated that they have got the capacity to draw further on those inventories.

Okay. But they talked about having sufficient inventories to meet short-term lost tonnage. But it comes back to that word I think Cameco used, which was ‘indeterminate,’ you know, how long can this go on for?

Brandon Munro: It’s easy to sit back and start looking at a situation in a country and estimate how long the first wave is going to go for. And we have been doing that in Australia for example, looking at Olympic Dam, you know, South Australia has had one new COVID-19 case in 10 days. So, they have been extremely effective. Western Australia hasn’t had a case in a week there. Those two States, which border each other in Western Australia have been very effective at flattening the curve. But it’s for the first phase, Australia can probably hold out by closing its borders and maybe opening them with our cousins in New Zealand, but we could hold out for quite some time by doing that. We are a reasonably sized, reasonably self-sufficient country. The question becomes, can Kazakhstan realistically do that? Which is going to be a lot harder. For a start, you don’t have hard borders in Kazakhstan like we do, as an Island continent in Australia, but also those routes of trade, particularly into China and Russia are extremely important for Kazakhstan.

So what none of these mines want is successive disruptions. They don’t want to reopen their production, and in the case of ISR, start building wellhead development, and then a few weeks later have to retract all of their workers, send them home again, reduce production down because there’s a second wave of infections. And that’s the big unknown in this whole equation, both for Kazatomprom but also for Cameco.

Matthew Gordon: Yes. I mean, yes, I agree with that but I guess what I am puzzled by is, like they’re talking about production being disrupted until 2021 in terms of, obviously what they know today and you know, you have, I think you have talked about implication of maybe you know as much as 20%. It’s hard to call that. It’s hard to sort of interpret what that could mean outside of Kazakhstan isn’t it? I mean, how certain can they be?

Brandon Munro: Well, like you say, I don’t think that can be certain at all. And the comment about 2021 is quite interesting. So on the UXC interview, Mr Pirmatov said that he avoided being specific on answering a question about what will the impact be beyond 2021 production, but what he did do is point out that the way that an in situ recovery mine works is that it’s the wellhead development that I’m doing this week that’s going to produce production in several weeks, to even months’ time from today, because you have got to first of all build injection wells and you have got to build extraction wells then you have got to link it all up. Then you have got to acidify the ore body, which takes quite some time depending on the permeability and how much organics are in the ore body, et cetera, et cetera. And only then can you start operating the extraction well in the middle to start sucking this pregnant acid out of the ore body and take it to the production plant.

So two implications: the first one is even though they made the decision a month ago, they’re probably only now starting to feel the production decrease because, as per my example, it was the wellhead development that they were doing a few months ago that’s giving them the production over the last few weeks, and it will be different for different assets. The bigger mines that can have much bigger wellhead configurations and a longer cycle in their wellhead development and planning, they will continue to produce at full production for longer. But equally, the second point that I wanted to make is, the wellhead development that they can do once the disruption stops and once they can get back to work, that will have a long lead time in terms of creating new production. And again, the bigger the asset and the bigger the wellhead configuration, the longer it’s going to take for that to then produce.

So, Kazatomprom will have a schedule as to how long that’s going to take, and presumably they’ll have some planning, and once this production goes past a certain date at least some of those assets will start losing production in 2021 simply because by 31 December 2020,  they won’t be up to full production. And I think what that also leads us to is the realisation that if we see that 3-month period go longer, then that’s going to have a disproportionate effect on both the number of pounds hitting the market, but also the mindset of nuclear fuel buyers around the world because the penny will then drop for them that not only are they losing production in real time, but they’re losing future production as well that is likely at that point to then stretch into 2021. And the timing of that I think will be quite interesting in terms of, presumably, if because Kazatomprom are still down in 4-months’ time, we’re unlikely to see Cigar Lake back at any time soon as well. So those pennies will probably drop pretty hard for some of the fuel buyers if we see ourselves in that scenario.

Matthew Gordon: Okay. And this point really got me, we’re talking about exploration & development being, I think the phrase they used was, you know, work would be delayed for some time. Again, whatever that means. There’s a few things that that touches upon: it touches upon, if there’s no exploration and development, it affects the future; you’re spending money today to find Uranium for tomorrow. Okay. But if you’re disrupting that or just not doing it, you’re also reducing your overhead. Do you think, again, coming back to the sovereign wealth fund, they’re under any pressure from them to reduce spend in this climate because they’re worried about the contributions coming from Kazatomprom?

Brandon Munro: The numbers would certainly suggest that they have been. The capital spend by Kazatomprom has tapered very significantly, like the rest of the industry, I might add over, the last 5 or 6 years. And those numbers are in the public domain. So, what they were spending last year on exploration and development was circa half of what they were a few years ago. The reasons one would only expect are a combination of a falling Uranium price together with the need for dividends from their sovereign wealth fund, major shareholder.

So, how we see that develop because of COVID-19? As I say, on the one hand, you might find that they’re more flushed with money because of higher margins. On the other hand, you might find that the sovereign wealth fund doesn’t fully understand the value of investing forward into exploration and development and says, well, that’s a rather nice windfall. That’ll be rather handy. Thank you. Because I’ve seen my oil revenue dropped by 80%. Okay. I’ll take it.

Matthew Gordon: I’m not surprised. But like Cameco, the language being used here, and I’m just looking through all of these statements, the language is one of a company, and we discussed this, you know, way back when, on the geopolitical front, et cetera, you know, can two companies control the pricing in the market? We talked about that a long, long time ago. Do you think the scenario has been created now by which they are going to try and pull all of the levers that they possibly can to affect the spot price?

Brandon Munro: I don’t know. I tell you what we can say; whether they knew it before or not, they’re suddenly had a bunch of levers thrust into their hands. Whether they’re prepared to use it and how they’re prepared to use it and whether they happen to use similar levers at the same time, I think that’s all up for debate and it’s probably not very useful to speculate on that right now. But the fact is, they do have some very impressive leaders and as you say, both Cameco and Kazatomprom had made it pretty clear in their own way that they’re in a position to turn these assets back on in a manner and in a timing that’s of their choosing. And that came out really clearly from Cameco. And I think with Kazatomprom you always need to read a bit more of the subtext. But that’s what we get out of that confirmation that this is a force majeure event under the sub or sole use contract. They can bring it on whenever, if they can keep this asset turned off for as long as they plausibly can maintain that this is in the best interest of the health of their workers, their families, their communities in the country.

Matthew Gordon: I get that, but it’s also, it just so happens the environment which has been created, it’s also going to be better for their bottom line if the spot price returns, and the one sure way of doing that is to kind of clean out the mobile inventory in the market place. We talked about mobile inventory last week and we’ll put a link to last week’s Cameco discussion below, and this article below. But it’s in both of their interests to engineer a scenario where the price discovery comes back quicker, and with these leavers at their disposal, they are in the best place to do it aren’t they?

Brandon Munro: Yes. And I think we need to be a little bit careful about talking about both of them together. One thing that I know for an absolute fact is they are both extremely careful not to be seen, or even perceived in any way whatsoever the acting together. And I’ve been in the room with the key executives and I’ve seen first-hand that they are extremely careful. So, I would be really confident ruling out any form of collusive behaviour and any form of cooperation or even communication about what might happen.

But if you look at them separately, each and both of these companies have got significant levers. There’s no doubt about that. But I would say that Kazatomprom’s levers are a lot stronger. And I’d say that for two reasons; one is that they have just got more of the market, of course. But the other one is that they can achieve that objective of holding production back, to push the market towards price discovery sooner, and at the same time, have the secondary effect of inflicting additional pain on their competitors who happen to be joint venture partners.

Now again, I want to stress, I don’t think their strategy is around trying to play a hard, competitive game here. I don’t think that would drive their behaviour in any way and I’m not suggesting that. However, that would be a secondary effect of either them having their hand forced into keeping this production off for longer, or then making an active decision to be rather slow to bring this production back. And as far as secondary effects go, well that’s not a bad one to have in your back pocket as a CEO of a dominant producer in a commodity.

Matthew Gordon: Indeed. And there’s one last group who perhaps it won’t be so happy; I think both Cameco and Kazatomprom separately have talked about carry trade and the fact that it may now be obsolete.

Brandon Munro: They have indeed. And the comments in this interview that your listeners can access now directly made about the carry trade reflect some of the discussions that you and I’ve had probably three weeks ago, actually. So for people inside the industry, it didn’t come as a particular surprise, but certainly for investors out there, it was an interesting confirmation of some of the points that you and I discussed. So, Kazatomprom said, in as many words, that the traders won’t have the bread and butter business of the carry trade available for them. As you and I discussed, it was for two reasons: one is that they have found it harder to get access to financiers who will carry the material out, given uncertainties at the moment. But the other one is to be able to carry pounds forward under the carry trade. They need to buy them in the here and now spot market and then finance them for a period of time, store them for a period of time and then deliver them to the utilities, at which point they get their fee.

So, that material just isn’t available. And to have, first of all, the CEO of the world’s largest Uranium producer telling, not only the traders but the traders customers, that they’re going to have a hard time finding material for the carry tray and then have Grant Isaak who’s the CFO of Cameco directly endorse those comments, refer to them and endorse them and confirm them on the call that Cameco had last week – that’s pretty telling. And the way that Mr Pirmatov talked about it is, he was saying that the traders are just simply going to have to reinvent themselves to be able to maintain relevance, and their role has been quite important in an oversupplied market; they have then had to find ways of making a buck off replacing and moving around excess material. And that’s not too hard when you have got an oversupplied market and a couple of producers who represent most of the bottom tier in terms of production costs, who are happy to just be selling, even though the spot price is continuing to fall. Now that we have moved from deficit into what looks to be serious and deep deficit, as a result of COVID-19, they won’t have that role to play, their relevance won’t be the same in the market, and they’ll either have to find much more innovative ways of producing product and producing trades or they’ll need to find another commodity, I suppose.

Matthew Gordon: Now, all of this is happening whilst there’s potentially a deficit in the market, there’s a lot less energy being used. But do we know anything about the numbers there? Is it meaningful? Is it too early to tell?

Brandon Munro: It’s certainly not going to lead to a deficit. We have seen, I think what you’re referring to some of the reports that are starting to put numbers on the demand side, so in other words, what impact has COVID-19 had on short term nuclear power demand? In the scheme of things, it still is nowhere near meaningful. But just to give you an idea, approximate numbers: ETF have said that their quarter production will be down about 15%. ETF is the nuclear utility in France, so they’re a special case; because they produce two thirds of France’s energy, they’re going to have quite a straight line, direct relationship between France’s overall energy demand and what they produce as nuclear power. And so that’s very much a reflection of the destruction of industrial energy demand while France has been in a lockdown.

It’s only one quarter but they have achieved that through rearranging outages and maintenance and so forth, so it may not have directly affected, or the impact on the full year might not be as big. And we are starting to see France come out of the lockdown, so open question as to how -15% is going to change over the remaining quarters of this year and obviously into next year.

But in other markets where nuclear power isn’t so dominant, the effects have been a lot less and that’s because nuclear power is a very natural source of energy during a crisis like this. For a start, all of the power is on site. So unlike, say, coal or natural gas, there is no supply chain that’s at risk. Secondly, the power is paid for because the nuclear fuel was bought and fabricated over the last couple of years. And thirdly, nuclear power plants have a tremendous output per body, per human worker at the plant. And they run like laboratories. They’re basically made for social distancing and they can reduce their workforce quite considerably through absenteeism or people shift changes, et cetera, et cetera, as a result of COVID-19, and still run at full production. So, they are a natural choice to just keep chugging along.

In the US, where they represent about a quarter of US energy output, we have seen them drop a couple of percentage points compared to an industrial demand that’s dropped significantly more.

We have got the first numbers now that we can play with and start to analyse, but I still think it doesn’t go anywhere near being meaningful in terms of a reduction in demand. And the most meaningful part of the sector is China; and they have confirmed that COVID-19 has not affected the construction schedule of any of their 14 reactors that they have got under construction. And neither has it affected the production output of any of their nuclear power plants. And in fact, that was a point that Kazatomprom was quite careful to make in their results this week.

Matthew Gordon: I think it was a great announcement. As you say, I think it’s nuanced, very nuanced compared to Cameco. But the thing has an undercurrent, which I think people may interpret, and maybe they’ll interpret it in different ways, but you know, for me, I think it feels like a good time for them at the moment, health and safety aside, I think it’s a good moment to maybe try and have an influence in the marketplace like Cameco are trying to do. But we shall see what goes on.

They are good people. These are good people. I used to be in the oil & gas business in Kazakhstan when I first went there in 2012, just after the London Olympics actually. I was on a plane full of very happy and jubilant Kazakhs who had won about 12 gold medals in wrestling, and I met some lovely people.

Brandon Munro: There weren’t any fond re-enactments in the aisles of the plane on the way back?

Matthew Gordon: Well, it is funny you should say that; there was, very late on, much alcohol had been drunk and a fracas broke out, and the cabin crew who would normally, I guess, launch themselves at these people, decided to stand back. So yes, that happened. A flight I couldn’t forget, so yes, but try tackling a heavyweight gold wrestling medallist – it wouldn’t work, would it?

Brandon Munro: Oh, the cheering when the plane landed successfully would have been bigger than normal then?

Matthew Gordon: Yes, It was, it was from where I was sitting. Well thanks. Thanks very much. It has been a quiet week, but still, nevertheless important, and moving forward, all the signs are moving forward. So, encouraging.

Brandon Munro: They are, they are. And although we have seen the spot price, take a little bit of a breather this week and hover at the USD$34/lbs mark, give or take 5 cents, that’s a natural thing to happen at this point. And what we haven’t seen is, we haven’t seen it retracting by USD$2 or USD$3, which in itself is a significant sign as to how much strength and momentum is behind this result of this production disruption and what it’s going to do for the spot price over the next couple of months.

Matthew Gordon: Right. Well, we won’t make predictions on price, but you think it’s fairly natural halt at the moment. And what’s it going to take to start seeing that price move again? And what’s your view on timing? Not necessarily the number, but when it starts to move again, because it’s had a big move? It has gone from effectively, USD$24/lbs to USD$34/lbs in a very short space of time, because people were excited about, you know, the Nuclear Fuel Working Group announcement, and I think that was sort of a let-down. Obviously COVID has done its thing, but has the reality of the situation dawned or do you think it’s much more organic than that. What’s the next step? What’s the next thing?

Brandon Munro: Yes, good question. Because there’s two realities that matter here: the first reality is the reality of the situation that we have been able to directly observe in terms of what’s happened with production disruption, and we’re only starting to understand what the reality that situation is because we don’t know how long these massive Uranium mines are going to be off for. So, there’s a small proportion of the reality of this situation is known at the moment and we’ll only know the full extent of it once both of them are turned back on.

But the other situation that’s so important here is people’s perception of how much mobile inventory is out there. And that’s the situational reality that will have the biggest effect on the spot price. And the reason why we have taken a pause here and said it just hasn’t been very much volume.

So, apparently what I’ve read is that there was about a million pounds of spot that Cameco moved through the market before making their earnings call last week. Probably, there hasn’t been much of that at all this week. The total pounds through the market last quarter was about 17Mlbs. That was on the whole quarter. And when you look at the average price, most of that material went through before the spot price started to move. So, we have seen it take off of still relatively small volumes, and we will know the first realities of that second situation, how much inventory is out there, only when we start to see decent volume on the buy side in the spot market.

So, to answer your question, what it’s going to take and when it could take? It’s just a question of when do we see motivated buyers enter the spot market? That’s, I think, when we’ll start to see the spot price shift again and start moving up again.

Matthew Gordon: Yes, I think that’s true. That’s the reality of it all. Well, look, we had better wrap it up there for the week. Oh, I had better put a small plugin for the Australian IMM Uranium conference in June.

Brandon Munro: I know, I saw you. You have got a plug there. Well done to the organisers. I think you’ll be great.

Matthew Gordon:  I don’t know about that, but it seems like a nice event. A few names there that people would recognise.

Brandon Munro: Yes, that’s right. So who’s on your panel? It’s a Treva Klingbiel

from TradeTech. We have got Mike Alkin?

Matthew Gordon: Yes, Mike. I’ll give you a bonus point if you get the third one.

Brandon Munro: So they have probably got a Uranium participant? It’s Australian? Could it be John Borshoff?

Matthew Gordon: You know, you know – teasing. Yes.., all three of them have got very different…it’s a great panel.

Brandon Munro: I am sure you will bring the best of those numbers out between Treva and Mike.

Matthew Gordon:  Yes, yes. And then we have got John, we have got John on the other side of the spectrum in terms of the business drivers. But yes, pretty, pretty intimidating panel there – and me. So we shall see how that goes.

Brandon Munro: I can’t imagine for a moment that any of that intimidation is going to be sent in your direction.

Matthew Gordon: Well, I will tell you the intimidating bit – it’s going to be happening between midnight and 2:30 AM in the morning for me, and I’m the last panel on. So, if I can restrict myself from having a glass of wine beforehand, it should be fine. It should be fine. If not, it’ll be at least fun.

Brandon Munro: You might have a little bit more empathy for me taking these late at night, weekly wrap-ups from Perth?

Matthew Gordon: Indeed. Well, I’ll let you go. Thanks very much, and we’ll speak to you next week.

Brandon Munro: Yes, great. Looking forward to it.

Company Page:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

A photo of Bannerman Resources CEO, Brandon Munro.

RNC Minerals (TSX:RNX) – I watch the ripples change their size (Transcript)

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

Interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

RNC Minerals is a great turnaround story in the gold space. CEO Huet returns to talk us through the latest updates for the stable gold producer with exploration potential.

After becoming a much less nickel-focussed company, RNC Minerals could now have a name change to match. RNC Minerals could become Karora Resources (TSX: KRR). This is dependent on shareholder approval, but he claims that shareholders have been keen on a name change for a long time. RNC Minerals has been suffering from some legacy issues when it comes to marketing, and this appears to have put off some of the larger funds. Huet had already wiped then strategic plate clear, but now the name change could be the final step to clearly communicate the new value proposition that RNC Minerals has to offer. RNC Minerals may be completely separated from its confused, nickel-focused heritage. This is precise, focused marketing, and Huet sees it as a long-time coming.

Away from the new name, RNC Minerals has been busy working on a new acquisition: Spargos. RNC’s heightened cash flow and the Morgan Stanley renegotiation have allowed RNC Minerals to look at potential M&A much more actively. Huet sets an aggressive timescale of Q4/20, but a realistic timescale of Q1/21. The company has just signed a “definitive agreement” on Spargos, and it is just c. 45km from RNC’s plant. This gives the company 90 days of exclusivity. He claims that while the company still has to conduct its final due diligence, but the veins in the resource are a higher average grade than their underground Beta Hunt mine (excluding coarse gold). There are over 130,000oz in the resource that are over 4g/t. It’s looking like an average 3g/t grade in an open pit. RNC Minerals is now much less reliant on Beta Hunt, and this matters for shareholders. Huet thinks Spargos could have a transformative impact on RNC Minerals’ economics. The proximity to the mill is another game-changer.

Has this opened a lot of doors for RNC Minerals? Will the optionality increase the share price? Will Higginsville operations get ramped up now?

What did you make of Paul Huet? Is RNC Minerals a stock you’ll consider in the near future? Comment below: we will respond to everyone.

We Discuss:

  1. RNC No More: Name Change Announcement
  2. New Acquisition: What Do They Know and When Will They Have News on the Economics
  3. 2020 Plan: What’s to Look Forward to?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey, Paul, how are you doing?

Paul Huet: Hey, Matt. Long time no see, right? Is it two days now?

Matthew Gordon: It must be all of two days. But you have some news? I don’t know why you couldn’t have told me on Friday, hey?

Paul Huet: Well, look, I said we’d talk soon, on Friday, I remember saying that and then hanging up and kind of chuckling in the background, anticipating that we would likely talk on Monday. It is good to see you again and we have got some very exciting news.

Matthew Gordon: Yes. There are 2 things that we are seeing here: we are seeing a name change and an acquisition. First of all, the name change: what are you proposing that you are going to call yourselves?

Paul Huet: Yes, look, Matt, we ran an internal process and we have come up with a new name – Karora Resources. More importantly, this is something that we have been working on for a significant amount of time now. Back when I joined the company as CEO, we started saying our strategy would be different. We didn’t want to neglect or underestimate that we still have our Nickel operation in Quebec, but the fact is that we laid down a strategy and we said to the market, and to the street that we are a Gold producer.

One of the things we learned as we were marketing is that we were being dismissed by some of the larger funds, actually. When some people were looking at registers, I actually went to the Indaba show in Cape Town, and I had 2 guys walk up to me, and the said, ‘Look, we presented to you, we had no idea you were a Gold company, because it comes up as RNC – Royal Nickel.’ So it was a bit of a disadvantage for someone who doesn’t know us.

Rebranding has always been part of our strategy. I have been saying now for months; the only thing that hasn’t changed is the name. Well, today, you see a new name and the same similar focus. I will say that the precise focus that we have had is still going to be maintaining following through with our strategy. So, new name – long time coming. Exciting. And I am very happy about that.

Matthew Gordon: Karora Resources – how are you spelling that? How are you saying that?

Paul Huet: K A R O R A. And the ticker is going to be KRR. Now, Matt, look, I don’t want to get ahead of myself here; it still needs shareholder approval. We are going to announce this. It is going to be included in our management information circular. It is going to be voted on by our shareholders, they have to vote on it. But clearly, we have been hearing a message for some time now, from even our shareholders – when are you going to change this name? We are not a base metal company, we are a Gold company.

Matthew Gordon:  Okay, so it still has to be voted on, but you are saying that you have changed everything else in the company, this is the final piece of the jigsaw for you, and you think that it will probably help people who have seen you as a Nickel company in the past to understand what you are. Okay. Well, look, good luck with that. I can’t wait to see the designs and whatever else you do. But it sounds like it is much in demand.

The second one – slightly more important to me because you guys, and I have been saying this for a while, you guys are now throwing off a lot of cash – a lot of free cash here. And it is giving you a lot of optionality, especially since you did that Morgan Stanley renegotiation. We talked on Friday about the exploration optionality that you have, and you have got that, especially joining up a couple of these zones that you are looking at. So, great optionality for you but you have also gone and decided to go and do something else with your money.

Paul Huet: Yes. Look, perfect timing, new name; Karora Resources, a new acquisition. Look, we have made a definitive agreement on an asset that is 45kms from our plant. It is a great opportunity for us in the fact that, look, we have an asset that is 45km from our mill, the grade in the resource that they have, look, we signed a definitive agreement, we have still got to conduct our final due diligence. But the grades in the resource are higher grades than are underground at our Beta Hunt mine. Now, that excludes the coarse gold. But I am talking about the average grades. So, this provides us with more flexibility. In fact, there are over 33,000oz in this resource in Spargos. Spargos is the name of it, that’s over 4g/t, so we are talking about an average grade of, say diluted, in a 3g/t, in an open pit. Open pit is cheaper, hands down, mining than it is going to be underground.

We have been saying for months now; we have been saying we have a strategy on reducing our costs. How are we going to reduce our costs? We said we are going to focus on 4 things. We clearly demonstrate that behind the scenes, we are fighting for our shareholders, we are going to create some optionality via that mill. We are so much less reliant on Beta Hunt and that matters to us and that matters to our shareholders. If we want to turn on more at Higginsville, and this property here could, look, if we really are really aggressive – let’s call it Q4/20, realistically, probably Q1/21, what does that mean? It means that 2021, our plan, once we execute this thing and we sign this thing, our plan is going to be significant and we will have the flexibility – it will be significantly different than what it is today where we are not so reliant on Beta Hunt.

So, at the end of the day, this thing here opens a lot of opportunities for us, never dismiss that grade, that high grade. Open pit, nearby our plant, you know, you talked about cash, but owning that mill in that district and that area, really provides us that option. We are the nearest player to that asset. It made a lot of sense to us to acquire that asset.

Matthew Gordon: How much data do you have? When do you start to understand how much money you are going to be able to make by putting ore from there, Spargos, into your mill?

Paul Huet: Yes, so look, by signing this definitive agreement, we have given ourselves a 90-day exclusivity period. The truth is that this definitive agreement is buy-in, we have obviously done some work behind the scenes. We are going to refine that work. Our hope is that we can get to site. We want to get to site so that we are seeing a bit longer exclusivity period. With a thing this size, you wouldn’t normally see a 90-day exclusivity period. I think with Higginsville, we closed that in a quicker timeframe. The intent here is to give us the time that we need to get to site ourselves and some of our people in Australia, and then drill down into the numbers.

Look, let’s face it; last quarter, at Beta Hunt, we were, call it 2.6g/t, 2.7g/t, this thing could be 3g/t or higher, in an open pit, open pit costs are cheaper than underground; it is that simple. The average grade of this is higher grade. The Gold price is the same. The recovery; we are going to find that out during our complete due diligence but the test report suggests that we are going to get very good recoveries on this. This is really a no-brainer for us and our shareholders; creating optionality and a very good use for some of that cash that we have.

Matthew Gordon: That’s what this is about. I think that shareholders, and certainly the conversations that we are having with our subscribers and followers is that they are wondering what you are going to do with all of this cash this year. And I guess you are staring to answer those questions. You are buying up cheap Gold in the ground, you are looking at exploring your current assets and seeing what you have got there, and all towards the end of feeding your mill so you are in control of the costs there. All of that is pretty exciting.

Have you got much more to look for this year or is it going to be just all exploration?

Paul Huet: Look, we have still got our heads down on some key initiatives here. We remain steadily focussed. Look what we have done in the last 7 to 9-months; turning this whole company around. You know, I think we have still got some excitement in front of us and look, our drill bit; that program needs to unleash some really spectacular results.

Matthew Gordon: Okay, okay. Well, look, thanks very much for the update; I know it was a quick one, but it was very interesting. I like the name change. I think it adds that freshness to the story when it is not under duress; you are not doing it under duress. You know, acquisitions with the cash; you are creating more dollars – you know, $1 equals more than $1 when you do that, so I think that is great.

Keep it going, buddy. Nice story so far. I hope it continues for you.

Paul Huet: Thanks, Matt.

Company Website:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The RNC Minerals Company Logo.

RNC Minerals (TSX: RNX) – Ooh na na, what’s my name? (Transcript)

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

Interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

Hot on the heels of the announcement about the acquisition of Spargos and the proposed name change to Karora Resources.

RNC Minerals has agreed to pay $9M (30% $2.7M immediately, the remaining 70% paid over 30-months $1.26M every 6-months). The Morgan Stanley royalty elimination is a highly accretive transaction. The 2% + 1.75% NSR buyback effectively lowers the mining cut-off grade. The Morgan Stanley royalty covers ~2/3rd of the 1.22Moz historic M&I Resource (18,790 kt @ 2.0 g/t) and 0.68Moz historic Inferred Resource (10,634 kt @ 2.0 g/t) at HGO as well as large portions of our exploration targets. This is a significant move. And the resulting contribution to the bottom-line will be felt for years. We calculate it to be in the tens of million of dollars.

In addition this week RNC Minerals is proposing a share consolidation. 11:1. We discuss why and why not sooner.

And welcome to new addition, Roger Huet….

We Discuss:

  1. Morgan Stanley Royalty: Timeline, Terms and Possibilities
  2. Share Consolidation Proposal: Reasoning and Shareholder Benefits
  3. What to Look Forward to Next?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Paul, how are you doing, Sir?

Paul Huet Hey, Matt, how are you?

Matthew Gordon: Yes, not bad. It’s not quite a daily occurrence, but it is kind of getting there – you are throwing out the news like it’s going out of fashion. So, hot off the heels of Spargos and the rebrand situation. You’ve also announced this Morgan Stanley renegotiation. Do you want to talk to us about that? What happened? How long has it been in the works? Why couldn’t you have told me Monday?

Paul Huet: Well, it wasn’t completely signed on Monday. It’s been in the works for months now, actually. When we announced our renegotiation back in December of 2019, that was phase one. We were always working on phase two. We had a strategy and a plan to do everything we could to get this royalty eliminated. And this really, as you know, we’ve been talking about it for some time, opens up this district, this royalty. And we have been in this area for approximately two decades, almost 20-years, so now we are just further taking advantage of what we started. We started with phase 1, quickly did some drilling. Identified 5 areas. Now phase 2 comes along. We wipe out the last 2%. We take out the NSR component of the legacy portion of that royalty. This is a game changer for us. This really gives us flexibility, optionality. This is an opportunity where a company takes advantage of spending USD$1 and where it creates USD$2 to USD$3 for our shareholders. This is the best way for us to be spending our money to create value for our shareholders.

So, I’m obviously, I’m jazzed, I’m excited. It’s one more step in our strategy. One more thing, part of our focus. We’ve been in control for a long time now. This has been part of our strategy. We’ve executed on it.

Matthew Gordon: Okay. I mean, a couple of things there – what price did you end up paying for this?

Paul Huet Yes, it was USD$9M. Just think of it this way, look at it this way, Matt; today we have at Higginsville, when we bought Higginsville, we had 1.9Moz in our resource; measured, indicated and inferred. That’s all three categories. I know you’re supposed to split them up. We have 367,000oz of 2P reserve. You start looking at these numbers here, these things pay themselves back quite, quite quickly here.

The first 5%, of it was phase one, you can effectively say from the beginning to the end, a royalty that’s been in place for two decades, we’ve really paid USD$9M. It was always part of our strategy to continue doing what we’re doing. So, for us, again, the dollar spent was worth USD$3 for our shareholders in return as we continue to unlock this district here.

Our backs are not against the wall anymore; we now have Spargos. We’ve got Spargos in play here. Let’s say we get that completed, it could be as soon as Q1/20 that we’re mining in Spargos. We have no royalty here at Higginsville. We have more flexibility and optionality than we’ve ever had in our lifetime. Not so reliant on Beta Hunt.

The grade at Spargos is actually higher grade than our underground at Beta Hunt. And I know we’re talking about this royalty, but all of these things together are part of a larger strategy. It’s that simple. Yes. I can’t help but be excited about eliminating the royalty.

I’ve been mining for 33-years, Canada, the US, Australia, South Africa; it’s very uncommon that a mining company can actually repurchase or buy back, or eliminate their complete royalties. It is a very challenging thing to do. And how many of us look at ourselves in the mirror and think we’re a little bullish on Gold here? I’m certainly bullish on Gold. I think what’s in front of us is pretty exciting.

So, 1.9Moz of measured, indicated, inferred, is without a drill hole. That’s without any drilling. We inherited that resource. Once we start drilling this thing here, it could double, then we’re going to look back in time and go, man, are we ever glad we were aggressive? So, I’m very proud of the team. I’m very proud of the success. I think it is an amazing step forward for the new company as we proceed.

Matthew Gordon: Look, I can hear that you’re as pumped and excited as ever. I’ve been talking to people in the market about what the generation of this free cash flow that you’re producing now: you are making money, month after month, quarter after quarter, and it’s giving you optionality, which is great. And it’s a case of the markets looking at you to what you’re doing with it. And you’re saying you are going to put that into the exploration of these five new targets you’ve identified. You’ve made this acquisition at Spargos. You’ve renegotiated the Morgan Stanley deal, which is obviously fantastic. So those are all options that you’ve got under your control and I think that sends a big, loud message to the market, which I think is fantastic, but you’ve also done something else. You’ve also done a, or you are proposing a share consolidation? Why? Why have you done that?

Paul Huet Yes, so, actually, let’s clarify that: so, we put that in our management information circular based on the heels of our shareholders. This is us as a board and as a company listening to our shareholders. We have had a large amount of institutional shareholders, even some retail shareholders, some very significant retail shareholders have said to us, why wouldn’t you do this? We said, let’s pose the question to the people we work for – our shareholders. Let’s put it in the management information circular and allow our shareholders to direct us by voting on it. What are the advantages? Look, there’s some clear-cut advantages here too, Matt. Let’s face it, our larger, our biggest shareholder base is in North America. We open up the door for funds that can buy over a dollar. Right now, there are a tremendous amount of institutional funds that we would love to see in our shareholder base register that don’t exist, only because our share price is below it, USD$1.

Secondly, it also unlocks opportunities for funds with margin accounts. It creates opportunities to buy with margin accounts. So, opening that door will create an opportunity for us to get additional shareholders, which is certain. In fact, I actually had a call with one large retail person who said, you know what? You’ve actually, if you do this, Mr. Huet, you’re actually going to give me free money, and I didn’t understand what he said. He said, let me clarify; my own margin account will be created by you doing this in my retail. He’s a retail shareholder. He said, I’m now going to have an extra USD$50,000 that I’ll be able to do whatever I want with because their share price is over a certain price and it’s not a penny stock anymore.

Look, from the USD$0.19c we were at, our low at USD$0.50c here, we are 2.5 times there. There’s a lot of room here for opportunity and growth for us. I’m always a firm believer that you can’t go wrong if you listen to your shareholders. You’re not going to make everybody happy, but you should always at least listen to what they have to say. And this is a perfect example of us doing such a thing.

Matthew Gordon: Okay, well look, Paul, I’m a big fan of the turnaround story that you were a huge, huge part of, a driver for, last year. There’s been a lot of change, a lot of change in the last week. Is there much more to come? Is there more we should be looking for?

Paul Huet Look, we will never be sitting on our heels. We’re an aggressive team. We’ve got a new name. We’ve got a good shareholder base, a good board, strong executive team, very focused. There’s no doubt that there’s some opportunities and some value that we’re prepared to unlock in Western Australia and other areas of the Gold sector. So, I’d certainly say, keep an eye on us because we’re going to continue to deliver. We’re going to continue our production. It’s our first year, again, You know, people underestimate and they forget. You know, it wasn’t that long ago that we didn’t own a mill. We didn’t have any production. We didn’t produce 8,000oz a month. We didn’t have a large treasury. We had no cash. We have USD$38M in cash, but next month here are hedges are going to be gone, Matt.

So, as things come forward for us, we’re starting to make money here. We’re generating good cash at these prices. So, I’d say it’s a pretty exciting time. We have just got to remain focused, continue to deliver on our strategy and continue to have a strategy. Putting together a strategy and a plan and executing on it – you get things done. So, again, I’m quite excited. It’s been an exhausting week. It’s been a very exciting week. I have got to tell you, on a personal note, I adopted a little baby boy. So, whether I’m supposed to say that or not, he’s my seventh child. I’m a very proud father and tired daddy, but very focused and happy to work for my shareholders.

Matthew Gordon: That is fantastic. I’m talking about the adoption of the baby boy – congratulations! Number seven to join the clan. That’s amazing.

Paul Huet: Number seven: Mr Roger Hewitt. Amazing little 4lb, little beautiful little boy.

Matthew Gordon: Oh, well done. Congratulations. Obviously, well done with the company as well, but that’s great news. Paul, I better let you go. You’ve got to get back to the family, Joyce, and the kids. So, thanks very much for making the time today. I appreciate the phone call. I really do, but you know, let’s speak soon.

Paul Huet: Alright, let’s stay in touch, Matt.

Company Website:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The RNC Minerals Company Logo.

Jervois Mining (ASX: JRV) – Thought that was always the plan (yeah) (Transcript)

The Jervois Mining Limited company logo
Jervois Mining Ltd.
  • ASX: JRV
  • Shares Outstanding: 642M
  • Share price A$0.19 (14.05.2020)
  • Market Cap: A$122M

Interview with Bryce Crocker, CEO of Jervois Mining (ASX: JRV).

Jervois Mining is an ASX-listed mining company with a focus on cobalt, but with significant exposure to nickel and copper. Jervois Mining has assets in Uganda, Australia, and the United States (the main focus).

The company is hoping to benefit from the much-discussed and much-distressed EV revolution by producing raw battery materials. COVID-19 appears to have put a real spanner in the works of the EV thematic, though Crocker suggests the US government is viewing cobalt as a strategic commodity, and Jervois Mining could benefit.

Crocker paints a “profoundly negative” picture of the impact of COVID-19 on EV global supply chains. COVID-19 hasn’t just compressed cobalt demand, “it has DECIMATED it”. China was down c.80% in Q1/20 and the West is down 40%-50% in Q2/20. Some companies are losing as much as “US$100M per day.” There is no positive scenario near-term. Crocker expects a massive “dislocation” of the supply chain across 2020, and says people aren’t expecting it.

How does Jervois Mining plan on taking advantage? Do its hopes lie in the hands of the US government? Government subsidies for EV manufacturers are starting to flow back in, but they have been crushed because their export markets are off; this is particularly true of China. It’s also very difficult to be bullish when it comes to aerospace right now. Who knows when the airline industry could recover? There is a lot of uncertainty right now.

Crocker claims cobalt is a unique commodity, with 75% of cobalt coming out of the unstable Democratic Republic of Congo. The supply chain looks incredibly fragile as it is, and COVID-19 has worsened problems. The major mines in the DRC are still operating. Some borders are still open, but the border with South Africa is closed, and the border with Zambia is an “unmitigated disaster,” with queues stretching as far as the eye can see. The cobalt mines are stockpiling aggressively, and a lot of the highly-technical major projects are being canceled because of key minds being repatriated. The outlook for cobalt is very binary as to what is going to happen in the DRC. Crocker expects to see COVID-19 peak in the region in the first few weeks of June. Cobalt investors will need to keep their eyes peeled. The impact could be “profound.” COVID-19 is going nowhere in the short term, and the DRC already has logistical issues: the cost of trucking copper and cobalt out of the country is US$300/t.

Crocker is actually very happy with Jervois Mining’s own position in a stable jurisdiction with a “half-built” cobalt project. He has always claimed the US is the most strategic market in the world for cobalt, and claims the country is fast catching up China. The US has no domestic cobalt mines, and Crocker thinks it is timely for Jervois to be at the forefront of this.

Cobalt has always been of geopolitical importance to the US, and now it is even more so. Crocker expects green mining to prevail as the US government tries to create jobs in 2020. Crocker remains coy on the government’s plans for possible nationalisation, but claims cobalt is “up there” because of its importance to aerospace and critical industries.

Crocker expects the BFS by the end of the year. It’s nearly finished, there are just a few things to sort on the offtake side (metallurgical test work). Travel restrictions have caused delays. Jervois Mining has c. US$7M cash to see the company to midway through 2021. Away from Jervois Mining’s core Idaho assets, Jervois has been clear it wants a partner to form a JV for the Nico Young nickel-cobalt project in Australia. The rest of the projects will have their day in the sun, but right now there is an emphasis on keeping a tight balance sheet. This seems sensible. A Tanzanian acquisition is also on the cards.

We Discuss:

  1. Company Overview
  2. Grim Outlook for EV Revolution: Predictions Post-COVID-19
  3. Jervois Mining: Survival Tactics Involving the US
  4. Green Mining to Prevail: Hope for EVs
  5. BFS Completion Timeline
  6. Negotiating Deals at Present or Waiting for the Pandemic to Pass?
  7. US & Cobalt: Outcomes of Nationalisation
  8. Contributing Value to Jervois Mining: What Takes the Cake?
  9. Plans for Non-Core Assets: The Future
  10. On Listing in the US

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Bryce, how are you doing, Sir?

Bryce Crocker: Matthew,I’m well. How are you?

Matthew Gordon:  Not too bad. Not too bad. Surviving. What’s that bike in back? I meant to ask you. What’s that bike in the background? You look like a serious road bike kind of a guy.

Bryce Crocker: That bike is a specialised brand; a bit of free advertising, but it is a lot more technically advanced and capable than its jockey.

Matthew Gordon: Blimey. That seat looks terrifying. That’s the thing I would say to you, not sure I could cope. Right, why don’t we kick off with a one-minute overview of Jervois mining then I will pick it up from there?

Bryce Crocker: Yes, thanks. We are ASX-listed and we are excited to be a creating battery raw materials company, a producing battery raw materials company. We are focused on security of supply chains, supporting the rest of the industry which has clearly become more topical in recent weeks and months with the unfortunate arrival of COVID and the impact on global supply chains.

So, we are a group of executives who came from larger mining companies, and I guess, what I wanted to cover today is that we don’t typically talk about the commodity; but I did want to talk about Cobalt because it is very interesting, and if you look across all of investor presentations, you will see nothing in Cobalt and nothing in any of our statements, but it is an area where collectively as a team, we do have a lot of background. We do look at what we have as a competitive advantage, and it is. It is fascinating what has happened.

Matthew Gordon: I think we both want to talk about the same thing actually, because we talked to you previously about the company and where you are at, and we will get on to that but I wanted to talk to you specifically about what you think is happening, because of COVID-19, how you think it is going to affect buying behaviour, investment in the EV thematic, which obviously you play into with your Cobalt. What do you think the impact is going to be on all of that?

Bryce Crocker: Profoundly negative. Profoundly negative. Anyone who gets up and says otherwise doesn’t understand the physical dynamics of what is happening in the market and hasn’t really thought around what the implications are. I think Cobalt, it is interesting for a couple of reasons; I mean demand, it is not weakening – it is getting crushed. Completely decimated. I’ve never seen anything like it. You have got China orders, probably down 80% in Q1/20. All of the Western order makers: 40, 50% in Q2/20. Most of the big oil producers losing USD$100M per day, per day. And so you have had, from a supply chain perspective, you have had this massive disruption and we are just really at the start. And I think this is where this is interesting, if you look at what is going to play out over the next 3 to 6-months. We are really at the start of this process because COVID-19 from a supply perspective has really just started. We have got customers who aren’t buying or can’t buy because they are locked in their homes. Manufacturing facilities that are shut. So, if I am a steel mill, and I am getting ferronickel, ferrochrome, ferro cobalt – all of these deliveries, I don’t want that. That’s getting pushed back to the traders who are pushing back to the producers, and this shock is getting pushed through the system and is going to take time to flow through.

 But if you look at what is happening to end demand on Cobalt, I mean, electric vehicles, there’s no positive scenario in the near term as to what is happening for EVs, clearly. Orders are being crushed. But as you look forwards, I do think that the Chinese are trying to come back on. Their biggest challenge, from what I understand, is that really their export markets are off. They are trying to turn their economy back on, get those order flows to try to start again. They are obviously, again, it is the incentivisations, the government prioritisations for electric vehicles, that’s flooding back in.

But any way you look at it, electric vehicles, the numbers are fluid but it is going to be a significant, significant reduction. Even over last year, and we are talking growth rates that have gone. So that’s the bad news on EVs. But is that a structural, permanent shift? I can’t talk about that. I don’t believe so, but it is going to create a massive dislocation in the supply chain across 2020 that people weren’t expecting.

 So that’s on the electric vehicle side, which is obviously Cobalt Chemicals, Cobalt metals – aerospace: it’s pretty hard to be positive on aerospace right now. I would suggest that this is 30% to 40% down. Oil and gas – it is pretty difficult to be positive on oil and gas type exploration drilling, so cobalt gasses etc.

So, demand is bad, but I think, taking away from that, Cobalt is kind of unique because you have three quarters coming out of one country that is highly unstable so, we all hope that Africa, including the Congo, gets through COVID. We are sitting in a part of the world where we are relatively very fortunate. There are some other parts of the world that don’t have the health infrastructure. The majority have immunocompromised complications because of HIV which don’t have the efficiency of the governance, perhaps, that we are able to rely on in the West. We are all hoping that Africa holds together as a continent, particularly the DRC because there is no safety net in the DRC if something goes wrong. But clearly, with three quarters of the Cobalt coming out of the DRC, for context, it is twice the size of OPEC on the oil market, so, it kind of matters.

In terms of what we are seeing and hearing on the DRC, the major mines are still operating. Some of the smaller ones: KiPOI*, Isoko, Kisavari are shut. But the big mines, the Katanga’s, TENKE’s etc, they are continuing to operate. The border currently is back open, obviously you have two borders to get the product out of the DRC: you have got to get through Zambia then you have got to get across from Zambia to South Africa. South Africa is shut, so the port of Durban is shut. There is material coming out to the east, through Dar es Salaam, material is coming out from Mombasa, traders are using alternate exit routes.

For the trucking, I mean, if you have ever been to the DRC, the border with Zambia is an unmitigated disaster at the best of times: just queues stretching as far as the eye can see and a lot further. So that is obviously there now. You do have Sulphur and Lime and consumables coming across. The mines in the DRC are stockpiling aggressively on the expectation that there could be some disruptions. Expats are gone. In a simplistic and broad statement, but a lot of expats with their families in South Africa, they didn’t want to be sitting in the DRC, so a lot of the critical technical expertise, major projects are being cancelled.

So, I think it really depends. So, the outlook for Cobalt is very, very binary to the situation in the DRC. They are behind us. The advise that I have seen is that the COVID-19 peak is coming; you are looking at June, week 1 June, week 2 June, in terms of when it is likely to genuinely flow through. Clearly, the potential market impact is profound. Cobalt, Metal Bulletin SG grade is trading at about, I think, around USD$14/lbs, USD$15/lbs, so that is inconsistent with demand getting completely destroyed. If you look at what has happened in the oil market, obviously, that shows what happens when demand disappears, which illustrates with the Cobalt market, there is this uncertainty there about what is going to happen in the DRC.

The Chinese refineries have inventory for now, but that inventory is not going to last multiple months. There’s material obviously sitting in Durban, which is waiting to get out, as and when the ports open again. But COVID-19 is also not going to go away. One of the greatest challenges of the DRC is logistics. It is one of the most painful places to get consumables in and to get a product out anywhere in the world. It will probably cost you USD$300/pt to get it out on the back of a truck; whether it is Copper, Cobalt hydroxide.

Zambia has installed a 14-day quarantine period, so if you are a truck driver, you come in from South Africa, you get a 14-day quarantine period upon entry to Zambia, you go into the DRC, you come back, you get another 14-day quarantine period. Trucking delays are probably up only 2 to 3-days currently. There is no shortage of guys wanting to drive the trucks, for now.

If South Africa, Zambia and particularly the DRC, they are different, there is potential for social unrest in the event of these big mine closures, clearly, to use the artisanal supplies as an example, people aren’t mining, you don’t get women and children mining artisanal Cobalt because they choose to do that versus open a corner stall selling clothes, they are doing that because it gives them the option to put food on the table. Many people are working at the big mines; they are big employers. The social implications of these sites shutting is profound. I don’t profess to have a crystal ball. I don’t know which way it is going to go but the potential market dislocation is obviously enormous.

What is highlighted in our conversations with other ERMs and other end-users, clearly the DRC has been there and people have been uncomfortable with certain aspects of the DRC, whether that is governance, whether that is the artisanal mining, for a long time, but now they are looking at the security of supply chains and realising that this really is a profound risk to their business. Being reliant on a critical component for electric vehicles, or for steel production from a part of Africa which is obviously a long, long way from you having the confidence that you are going to get the product that you need on time.

Matthew Gordon: Okay. That’s a fairly devastating picture you are painting with regards to, obviously, demand, which, as you say, you are not quite sure when that kind of comes back on because it is a kind of slightly dislocated logistic supply chain at the moment. So, if the Chinese come on earlier than the rest of the world, we are sort of playing catch up there. I know that you were talking about Cobalt in the DRC because Cobalt is a big part of the DRC economy. Can I just ask, before we get onto you, what do you think it is going to mean for the other battery commodities: the Nickels of this world, the Lithium, the graphites, et cetera. Are they as disrupted as Cobalt?

Bryce Crocker: No commodity has 3/4 of supply coming from one country. Clearly, Indonesia is incredibly important for the Nickel market, and clearly other countries are important for Lithium. I don’t pretend to know as much about the Lithium market, but from what I see, there was an expectation that Lithium was in over-supply before this began, so that kind of implies that Lithium is in for some challenges.

Lithium ion batteries, the components are subject to discrete market forces. Nickel is going to be a core component of the battery, moving forward. Everyone wants a car that is going to go a long way and gets there quickly. That’s obviously a big part in what is going in with the success of electric vehicles because everyone wants to get there quickly and get there fast and gets there safely, hence the significance of Cobalt. If Cobalt was easy to engineer out, we wouldn’t be having this discussion. There have been a lot of smarter people than I am, looking at this for a long time, but as of today, it hasn’t been possible to engineer out in a way that provides the same performance et cetera, as an 8.11 or one of the high-Nickel NCA chemistries, Panasonic, Tesla’s…

Matthew Gordon: Okay. Well, I guess the whole EV market is going to be dependent on the lowest common denominator coming through, and you are suggesting that is Cobalt, because of the dynamics in the DRC. So, let’s get back to you; what are you going to do about that? How is that going to affect your business? Because we have been reading about your and talking about your Idaho business. There has been lots of conversations about conversations that you have been having in the US with US funders. Is that your route out of this?

Bryce Crocker: Well, if you gave me a choice of, in this type of environment, what mining project would you like to have? I would take a Cobalt project in the United States with moderate capital, that is half-built. That is, as opposed to other alternatives that I could have on my plate, that is not bad. I think that I’ve always said that the United States is the most strategic market in the world for Cobalt, period. Because of the importance to aerospace, because of the importance to the steel industry and increasingly, because of the importance of electrification. The US automakers have been behind those in China but they are catching up fast, or they are planning to catch up quickly. I think that being in the United States, the United States has no domestic Cobalt mining, it is all imported, so, for us to be at the forefront of that is obviously, it’s timely and I think it does provide an opportunity.

If you look, Cobalt was always geopolitically important to the United States, now you are in a situation where anything you can do to create economic growth and jobs in the second half of 2020 and into 2021 in the US is going to be enormously important. I mean, we are all seeing the news out of the States. We are all seeing the levels of unemployment rising at quite terrifying rates.

We are already getting traction with what we want to do. Now, I think there is an opportunity to really have a profound impact and build a mine during a period when the US and Idaho is looking to create economic growth once we come out of this situation.

Matthew Gordon: It sounds logical, but it is also enhanced, I guess, by this wave of nationalism which is spreading across the US; US first. We have also read about the support that you are getting for this. You say that this is timely. This is absolutely timely for you. You have recently submitted some RPFs, is that right?

Bryce Crocker: So, this is in terms of our debt financing process. We are working the site pool with potential lenders. We will be finalising the bankable Feasibility Study for Idaho shortly to provide that to the banks on an NDA level, so they get an updated financial model. We did provide indicative term sheets in January. We have made a decision at that time not to make a final appointment. We want to progress the PFS and get to the position where we can really differentiate between the options that are available.

This is an asset which, there has obviously been USD$100M which has been spent so it is a part-way constructed mine in a great jurisdiction. Clearly, I mean, the capital markets, I spoke a little about what has happened in terms of industry on the supply chains. Capital markets, again, they have lots of volatility, but equally, lots of liquidity getting pumped into the system, I guess. USD$10Tn between fiscal injections in the US and monetary easing, certainly that is having an impact in terms of debt capital markets remaining open and banks willing to lend. And clearly you will have seen an impact in terms of what’s happened to the Dow in terms of the last 30 days or so,

So, I think as we move forward, we have moderated the timeframe because we didn’t think it was the right time to be pushing someone to go through credit right now, just given the uncertainty. I mean, we are optimistic on the future. I am in transparent in that I think demand right now is crushed but I don’t expect that to last indefinitely. I do expect there are also going to be pushes that come out of this, if you like, like COVID-19, that are difficult to judge now. I think everyone in the city is getting to like having clean air with oil use being down by 30M to 40M barrels per day. People are going to Venice and seeing jellyfish – it is things like that. But I think that it is difficult to judge what the environmental flow-through will be in our governments when they come back on and revitalise the industry, are they really going to want to revitalise industry and reallocate their capital towards ICEE production rather than taking the opportunity to use it as, essentially, a step change on the EV side.

Matthew Gordon: Right, just tell me a little about the types of institutions that were submitting bids? Because if you look at people like BlackRock, I mean, that’s the one that people are talking about, they are segueing away from coal, they are segueing away from oil, and they are moving into and investing into cleaner and greener opportunities. So, are you seeing more of that? Or is it just the usual players?

Bryce Crocker: No, I think that ESG is a big deal. I mean, I know there is a debate between you and the companies you speak with. What does COVID-19 mean for ESG? Is it on the backseat for a period? My personal view is that I don’t think it will. I think that ESG is here; it is an important part of investing. It is in the matrix of any decision-making. Also, the electrification of vehicles is something that is fundamentally important, and I think that it is going to be a criterion, if we had a coal mine up in this part Idaho, we would be having very different discussions. We would be having discussions with many of the lenders, the commercial banks aren’t in the business of funding coal mines, and equally on the equities side, a lot of investors are also, I think looking at ESG. If you want to invest in Cobalt, you have either got to go to the DRC, which is very difficult within an ESG type framework, or a lot of the other projects are large capital, long lead time, high technical risk in varied jurisdictions, not without exception, but as a general rule, some of the better projects are located in more challenging jurisdictions than the developed world.

So, again, this is where Idaho is nice; I mean, it is small. You know, I like small, I like low-risk. It’s a good way to start a business.

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The Jervois Mining Limited company logo

Benchmark Metals Inc. (TSX-V: BNCH) – Yeah, like I pictured, but even better (Transcript)

The Benchmark Metals company logo
Benchmark Metals Inc.
  • Shares Outstanding: 99M
  • Share price C$0.33 (14.05.2020)
  • Market Cap: C$33M

Interview with Jim Greig, President of Benchmark Metals Inc. (TSX-V: BNCH).

A really encouraging gold-silver story that investors should be paying attention to. We last spoke with Benchmark Metals in September.

What’s changed? Benchmark Metals is a TSX-listed gold-silver advanced explorer in British Columbia, Canada. The company is looking to deliver up to 50,000m of drilling this year, a mineral resource estimate, and a PEA. The track record of the team suggests they know what they need to do and how to do it, and the company has C$10M to ensure they do so..

What is Benchmark Metals going to drill on? The preeminent focus is the Lawyers Project in the ‘Golden Horseshoe’ of BC. In the heart of the property, there are 5 zones within 3km of one another. Several of these zones produced 30-years ago at a high-grade, but now Greig foresees several open pits at surface. The drilling will build upon data from 2018, 2019, and historical data over 30-years ago. These zones are being extended. Rather than hunting for high-grade veins like companies have done in the past, Benchmark Metals has focussed on mineralisation at a deeper level: up to 150m.

What is the game plan? Benchmark Metals is targeting multi-million ounces after this next round of drilling. In February, the company released an exploration target based on data from 1 of the 5 zones. The company put out a range of 1.7Moz to 1.9Moz at an average grade of 1.7g/t gold. With this next round of drilling, Greig believes he can increase the grade of the zone and bring the other 4 zones into the estimate. He thinks the company can move well beyond the potential of multi-million ounces.

Benchmark Metals is fast-tracking the development of this project, so investors may be able to look forward to an accelerated value event. Because it’s a brownfield type of play, there is a footprint to production that has already been mapped out, allowing Benchmark Metals to proceed faster.

Like “any junior with an attractive project,” Benchmark Metals would like to exit if a major comes along with an appealing offer. Greig is building something for sale. He knows his skillset and has no intention of going into production. He wants to be taken out. Senior members of the management team have been involved in the full gold cycle, from discovery to development to production, so investors shouldn’t be concerned if there is an unexpected change in plan.

What would a potential new suitor be looking into? Access to roads, a large power line, flat topography, no wildlife concerns and signed agreements with the local first nation. Benchmark Metals is fully permitted with a 5-year notice of work. Greig believes that if he manages to sit all these milestones, the company will be vaulting towards a +C$200M market cap. The major milestone events are what shareholders and investors are looking for.

The management team are also big shareholders in the company, so they want to share in the success. The Senior statesman of the company, John Williamson, was the director and founder of Kaminak Gold Corp. Back in 2016, it was sold to Gold Corp. for just over C$500M. Other members of the team have seen similar success, taking a $0.25 company to a $10 company. Lastly, Greig touches on the increasing gold price. An increasing gold price will eventually help Benchmark Metals capture the value it has struggled to attain. Gold producers are reporting estimates over and above expectations. At some point, this will trickle down to the junior miners, such as Benchmark Metals, because producers eventually need to replace gold resources and ounces. The catalyst for a major to takeover a junior comes when the major depletes its resources in the ground.

We Discuss:

  1. 1:37 – Company Overview
  2. 2:46 – Focusing the 50.000m of Drilling: Asset History and Expansion
  3. 5:22 – Game Plan and Strategy: Fast-Tracking into Production
  4. 9:38 – Exit Goal and its Feasibility: Team Experience and Financial Capabilities
  5. 11:42 – What’s Included in the Deal: Discussing Infrastructure, Permits, Licences and PFS
  6. 14:38 – Track Record: Assuring They Can Do it Again
  7. 16:07 – Becoming a $200M Market Cap Company: How Will They do it?
  8. 17:08 – Gold Price Increasing and its Benefits for Benchmark Metals

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Jim, how you doing, Sir?

Jim Greig: Very good. Thank you.

Matthew Gordon: Good, good. Thanks for joining us today. We haven’t spoken since December. A lot has happened since then, so I guess we better talk about it, but first of all give us that one-minute overview for people new to the story.

Jim Greig: Certainly. So Benchmark Metals is a Gold and Silver advanced explorer in Northern British Columbia, Canada. We about got a road accessible project. Does it need expensive helicopters? We are fully funded for a large program in 2020 with over USD$10M in the budget and we’re embarking on up to 50,000m of drilling followed by a new mineral resource estimate. And on the heels of the resource estimate, we will be planning to complete a new scoping study – that’s a preliminary economic assessment.

Matthew Gordon: Okay. That’s it. That’s it. We’re done, aren’t we? That’s a great update.

Jim Greig: That’s it. Let’s wait for the results and let’s watch our market cap move.

Matthew Gordon: There you go. Mining is as simple as that folks. Let’s get into it though. Okay. When we spoke, you had USD$5M in the treasury, you’re raising another $5M, giving you circa USD$10M, and you were telling me that would see you through to the end of this year, I guess achieve your up to 50,000m of drilling. So let’s talk about the drilling: where are you focusing it and why?

Jim Greig: So, in the heart of the property, we have got 5 zones and they are all within approximately 3km apart. Several of these zones were formerly producing over 30-years ago where they were mining very, very high-grade. The difference in the story this time is we believe, and we have shown through current drilling, that there’s bulk tonnage material from surface down. So, we foresee what would be several open pits at surface and the drilling builds upon results from 2018, 2019 but also on historical data from well over 30-years ago.

Matthew Gordon: Okay. Again, just a reminder,

Jim Greig: We are extending the zones.

Matthew Gordon: You are extending the zones. But, just remind people of that kind of structure of what was there before, because this is an old mine. People were chasing high-grade veins, but you’re coming at it from a different angle, different strategy. So, if you talk us through that,

Jim Greig: That’s right. So, when this mine, the Cheni Gold mine was producing, they were mining there 1m to 5m, very high-grade veins that you know, grade coming out of them was approximately half an ounce or larger. And you know, those are narrow subsets. But after a revisit of drilling in 2018 and 2019, we’re showing that mineralisation does indeed begin right at surface but can extend for up to over 150m of moderate grade. And when I say moderate grade, I say that loosely and proudly that you know, you can see average grades of anywhere from close to 2g/t over long intersections. But we have also seen 6g of near 36 metres from surface. So, you know, 30-years ago, 1g/t or 2g/t material over large lengths was not economic, but 30-years later, it’s very economic in those situations,

Matthew Gordon: And that’s because what? The recovery is better these days?

Jim Greig: Recovery of it was actually quite good back then but it was all about Gold and Silver prices. You know, so now we’re at a USD$1,700 Gold price. Back in those days, I think you were looking at approximately a USD$300 or USD$400 Gold price. So, multiples on the commodity price compared to when they were operating back then.

Matthew Gordon: Okay, and again, I want to remind myself about what’s the game plan here? Because you can, we get the strategy – it’s a bulk play with some potential high-grade upside. But you’re drilling to 50,000m. What do you expect it to be able to tell you? Because if you’re going to put out a resource, you must have a number in mind.

Jim Greig: That’s right. So, we’re targeting multi-million ounces after this next round of drilling. In February of this year we put out a mineral, or rather an exploration target, and this target was based on data from one of the five zones. And we put out a range of an approximately a 1.7Moz to 1.9Moz in one single zone – Kemess Mine. And that had an average grade of approximately 1.7g/t Gold. We believe with this next round of drilling, we can expand that zone in addition, increase the grade of that zone, but also bring the four other zones into a mineral resource estimate. So, the message in February was this was a baseline, a starter that we were looking to achieve and we think we can move well beyond that potential.

Matthew Gordon: Okay. And you’re then, obviously, following that quickly, following on from that a PEA. You’re getting a sense of the economics of this thing, especially in a Gold bull environment, people are keen, well, funders are keen for people to get into production early. Are you tempted to try and accelerate it? Because you did talk about a fast track to production scenario with me in December. Is that still the plan?

Jim Greig: That’s right.

Matthew Gordon: So, what does that look like?

Jim Greig: We are indeed fast-tracking. In 2-years, we have advanced this project very, very quickly. Given that it’s a brownfield type of play where there’s a footprint of former production that allows us to move much quicker towards a production scenario. With that 50,000m of drilling, we’re also engaging on completing some metallurgy. We have first nations agreement signed and in place. We’re already preparing for additional work in order to complete that Preliminary Economic Assessment. So, all of the boxes that we’re ticking are geared towards completing as much as possible in a short timeframe.

Matthew Gordon: Okay. But that’s kind of easily said, right? So, the PEA only tells you so much. No one’s going to get interested in a company with a PEA unless that’s showing something spectacular. There’s a big room for error margin in a PEA. Where are you guys taking it through to, and at what point do you exit?

Jim Greig: Like any junior with a very good project, of course we would like to exit if you know, a major company came along and offered an attractive value to shareholders. And so, this is always in the back of our mind; how we create and generate more value for the company. And so, part of that is because we are road accessible and there is a footprint from former production, it allows us to move ahead much quicker in such that you know, we’re not cutting new roads. There is some metallurgical numbers from the past, at 93% Gold and 78% Silver is what they achieved 30-years ago. It’s a sophisticated area with the first nations. There’s a world-class Gold-Copper mine within 45km of our project. So, this is a proven and prolific area where you can build a mine. And we believe that with our treasury sat at just over USD$10M, we can achieve these three milestones within about a 12-month period. And I think that’s a remarkable feat given we are working in Northern Canada. And we do not need to go back to the market to acquire or build more capital in order to get this done.

Matthew Gordon: But I guess what I’m trying to get at is that at some point you will, unless you have decided what your exit point is, right? So, you have got enough money to see through to the end of this year and then you will need to go out, and if you are going to develop this yourself, you’re going to need to raise some capital. But you’re talking the language of someone who’s building something for sale. Is that right?

Jim Greig: Correct.

Matthew Gordon: Okay. Yes. So, you know what your skillsets are, and you know where you’re going to take this thing through to and you’re building it to be attractive for someone else to finish the job.

Jim Greig: No question. That is the response. We are building this to a scenario where we’d like to be taken out. Yes. Look, our skill set within management is very good. Senior management has been involved in new discoveries. We have put mines into production. So, we have gone the full cycle of discovery to development, construction, and then finally, production. But the biggest win for shareholders here is to be on the path where you go from advanced project and then finally building it towards a large resource and then showing economics that are very viable. We think we have got all of those boxes ticked in the short time period. There’s some cataclysmic major moments for us. And you know, I’ve mentioned them several times, but being able to fund and pay for these three events in a 12-month period is quite a success story. And we think you know, shareholders and new shareholders look at the results we have seen over the past two years. You know, it’s an example of what can be achieved here; high grade that’s embedded within large bulk tonnage type material at surface that can be recovered from very good results at the mill. And you know, we’re looking forward to a robust year here with some very good news flow.

Matthew Gordon: Okay. And tell me about what people would be buying. You’re going to say, we’re going to build a large resource. We’re going to have a PEA in place. What are some of the infrastructure components that are there? You have talked about roads, I’m assuming power, water, all of that kind of good stuff, but what would someone be walking into?

Jim Greig: So, for a new suitor to be looking at this project, they would be looking, of course, as you said, access to site with roads that are already established. There’s a large power line that goes to the Kemess Copper mine, which is located 45km away, so there’s potential for a tie in point there. The topography of the project is very sort of undulating, or flat rolling landscape. There’s no trees. There’s very little disturbance with environmental and wildlife matters.

As I mentioned, we do have first nations agreement signed. The first nations groups have been very cooperative and working forward with us. Their interest here is simply to have good job training and to have new jobs into the future.

Matthew Gordon: Okay. Any issues with licenses, permits? What are the kind of big red flags here?

Jim Greig: We are fully permitted, with a five-year notice of work that allows us to do all the drilling that’s needed. That was granted to us last year in 2019. At the moment, there’s no major obstacles other than, you know, we need to show these results. And given the results that we had over the past two seasons, I think this is, you know, this is not a pipe dream. This is a reality right now. This company has a USD$35M market cap. We believe we are undervalued. And if we hit all these milestones, you know, there’s a chance for shareholders, you know, not to make a double or triple, but I think we’d be vaulting towards a USD$200M market cap for larger. That’s what we’re looking for. And that’s the entry point in this company. You know, the cash is there and the capital to get in the treasury to get results. When we hit and get news flow and produce these major milestone events, you know, that’s what all shareholders are looking for; a major win with multiples. It’s a risky game here, but the management are also big shareholders in the company, and we want to share and win with the gains of other people.

Matthew Gordon: Okay. So, you have talked a good game, you have been clear about what you’re trying to do. You’re saying it’s quite attractive in terms of infrastructure and you have listed out what you’re going to be able to hand over to someone at the point that they, you know, come and come and talk to you. So, it begs the question, rather than kind of say we have been there and done it before, what have you done? What are the companies where you have created shareholder value before? I want to know about your ability to deliver it rather than just talk about it.

Jim Greig: Sure. So, our senior statesman of the company, John Williamson, who’s our CEO and chairman, John originally was a big shareholder. But at Kaminak Resources, he was a director and original founder of the company. Kaminak back in 2016, I believe was sold to Gold Corp for just over USD$500M. You know, that’s quite a win there. In my past, years ago, I worked with Keegan resources. I’ve been with Ivan Bebek and Sean Wallace and company, and we took a company from $0.25 cents to near USD$10. We built a mine in West Africa and created some tremendous wealth for shareholders along that ride. So, and there’s other names within our group that have an established track record as well.

So, we’re working with a professional group of management here who have built mines and put them into production and all of us participate in the private placements. So, we are indeed large shareholders and we are looking for wins along with the regular retail shareholders.

Matthew Gordon: Okay. When, again, when we spoke last time you were going out and talking to institutional funders, retail is a part of the story, but it wasn’t a whole part of the story. You are USD$34, $35M now, you want to get to USD$200M. You talked about how you’re going to do that.

Jim Greig: We do, we are at a point here where we have some institutional support. Our raises in the fall of 2019 involved Sprott and Eric Sprott himself. That also involved getting some institutional US involvement in the story. And I believe that’s part of the path forward here as we build the market cap at some point in a 12-month timeframe, when we have hit these major milestones, we’ll be in a very good position to seed more institutional money into the story. But we will not be doing that until the market cap has achieved a much higher level of course.

Matthew Gordon: Okay. The Gold price has, obviously, significantly enhanced since August, September last year. Do you think it’s a much better environment for some of these catalysts to get noticed? I think last year catalysts came and went, no one cared. Do you think now that Gold is back in favour, you’re going to be able to capture some of that? You said, you talk about being undervalued, right? So, do you think you’re going to be able to recapture some of that value quickly?

Jim Greig: Yes, I think there’s a movement of course towards Gold, but you know, the first step to making that happen is investors need to be shown that Gold mining is a real business. And what you’re starting to see over the past several quarters is that the Gold miners are producing some exceptionally good earnings estimates, not only estimates, but they truly are reporting earnings that are over and above expectations. And as the Gold pre price increases, well, their earnings only improve because they have kept a very good lid on their costs. And so, they now they’ve created some good margins, and with more successive earnings of beating expectations, at some point, that trickles down to the junior minor such as Benchmark Metals.

Matthew Gordon: Do you think that? That’s what I was getting at because the producers have seen a rerate because they are creating cash, free cash flow in a lot of cases, which is great. But how does it trickle down and affect someone like you?

Jim Greig: Well, I think what happens is that eventually all of these producers need to start replacing resources and Gold ounces. And that actually started years ago. So, you know, the catalyst for a major to take over a company like Benchmark Metals is quite simple. They are a business where they mined Gold and they deplete their Gold resources in the ground. And at some point, they’ve got to put new ounces back on the shelf to mine. And that’s where a company such as ourselves becomes attractive; we’re in a low risk jurisdiction, we’re advancing the project quickly. It’s an open pitable type scenario. The Capex should be well within reason compared to other jurisdictions, and we believe we will indeed be attractive once we complete these milestones over the next 12 months.

Matthew Gordon: Okay. Exciting times, Jim. I guess what you’re working towards is being able to show something around the economics to make sure you are as attractive as you hope. So, keep in touch with us. Let us know how you’re getting on. It seems to be a quick succession of a news flow, so we’d like to hear from you.

Jim Greig: Very good. Always a pleasure to be speaking with you.

Company Website:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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RNC Minerals (TSX: RNX) – In that orange glowing moment (Transcript)

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

Interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

Paul Huet is as excited as ever with regard to their Q1/20 Quarterly results. He talks us through the numbers. We have been impressed with the turnaround of the company since Huet came in last June. However the most impressive element is that despite fires, flooding and COVID-19 they have not only been driving their costs down and therefore reducing their AISC (down to $1,101), but also they have been producing cash.

We have been pointing this out since the announcement of the Q4/19 numbers. Investors need to understand what this cash allows them to do. The options are hugely increased. They have been looking at exploring some of their land packages with good results.

We Discuss:

  1. 1:30 – Q1 Results: Headline Numbers and Great Success
  2. 3:53 – Continuing the Winning Streak: How Will They do it?
  3. 8:39 – Strengthening the Cash Position: Free Cash Flow and Optionality
  4. 11:02 – Possibilities for Exploration: A Look into Trident and Aquarius

CLICK HERE to watch the full interview.

Matthew Gordon: Paul, how are you doing, Sir?

Paul Huet: Hey, Matt. How are you today?

Matthew Gordon: I’m all good. I’m all good here. Long time, long time. But you have got some fantastic results here I see today. Congratulations. Are you pleased?

Paul Huet: Yes, look. It’s hard not to be pleased when you can deliver results like we have in the current environment. So, I am absolutely thrilled with the team and the results we have had. It has been an outstanding Q1/20 for us.

Matthew Gordon: Yes, and that is the bit I want to talk about, but why don’t you give us the headline numbers for people who haven’t perhaps seen the press release yet? We will put a link to it on the comments section, but I want to talk about how you have done that.

Paul Huet: Sure, let me focus on a couple of things first, Matt, obviously the production – we have guidance out to the market right now: 90,000oz to 95,000oz. Q1/20, despite the challenges we have had with COVID-19, and even in January we had issues with rain and flooding, we managed to achieve just slightly under 25,000oz. Look, if you multiply that times 4, we are on a path to do about 100,000oz, which is the high end of our guidance, so I am extremely happy with the results with respect to production.

Alongside that, we managed 3 consecutive quarters, Matt, to reduce our All in Sustaining Costs. We have been very disciplined. We have been very focussed at following our costs. We’ve always targeted four things: those 4 things were Suppliers, Royalties, people and productivity rates., top 20 vendors, and all of those things that we have been working on have been successful. We are getting to where we need to reduce that AISC. Our All in Sustaining Cost (AISC) has dropped by another USD$30/oz. We are down to about USD$1,100/oz. Our target internally is to get it to USD$1,000 p/oz. Our guidance for the year was USD$1,500 to USD$1,200/oz: it was a larger range. But the truth is, early in January we were faced with some floods, on the heels of the fires from Q4/19. We have had a challenging goal here in Q1/20 and the team have still managed to consistently deliver, so it is nothing to baulk about. I’m pretty proud of them, actually. It’s a pretty exciting time for us and our shareholders.

Matthew Gordon: Yes, for sure. The thing that amazes me is that you are forecasting the same numbers that you did at the beginning of the year despite the fires, despite the floods, despite COVID-19, how are you managing to do this?

Paul Huet: Yes, so look; we have been very proactive on the COVID-19 front. One of the things that happened to us that was actually unplanned but it was a blessing for us: was the fact that when Graeme came on, we talked early on, every interview I have had with you, Matt, we have talked about how our turnover rate went from 87% to 16%. What I wasn’t saying in that interview was where our population or our people reside: we used to have about 80% of our people fly-in, fly-out at Beta Hunt. That has completely reversed now since Graeme has taken over. We have 70% of our workforce that are local. 30% fly-in, fly-out. That turned out to be a tremendous, tremendous blessing for us throughout this COVID. The lowest we ever got to with our workforce, the lowest of the trough was 68%, which coincides perfectly with where our workforce is located. So, when companies were struggling to get people in and out of the plant, our workforce was still coming to work. We are now above 90% with both Beta Hunt and Higginsville.

 90% of our workforce is at the mine site. So that is a huge change. By managing to get that workforce locally, we reduced costs, we reduced costs of fly-in, fly-out, we have managed to maintain our production. Coupled with that, Graeme did an extremely good job of hiring a nurse right out of the gate. Look, it was way back in February it was very early on. I think that we were actually the first mining company to hire a nurse, doctors, to do some pre-screening, to put them at the mine site, to put them at the airports. We have been very, very disciplined at making sure that our people coming into the mine site are properly quarantined so that we are not infecting any of the workforce.

All these things we have been doing have been very proactive and have helped us to maintain our guidance. Look, I was asking one of the bankers yesterday, Matt, what is the number for those that maintain guidance? The number I got was anywhere between 40% and 50% of all mining companies have dropped guidance.

We are very fortunate, being based in Western Australia, that none of the governments have come in and shut us down. We are being very proactive, we are being very disciplined in what we do, and as a result, you see the numbers in Q1/20.

One of the other things I just want to talk about is another step we are doing to be very proactive; we can’t say for certain where any of this is going. I don’t think anyone can, to be quite honest, but we are taking the worst-case scenario. We are saying, what if we are forced to shut down?  If that happens, we have placed a stockpile in front of our mill. We have built up a stockpile. We are mining from 3 sources today: we are mining from Fairplay, Beta Hunt and Baloo. We have about 100,000t of stockpile in front of the mill. If you are running 4,000tpd, that is almost 1-month’s of feed. So, putting that in front of the mill is a very disciplined approach.

 In fact, I will tell you this – it is what saved us in Q4/20. When we bought Higginsville, I remember telling you this, Matt, early on, when we bought Higginsville, we got the mine, the mill, but we also got a stockpile. When we had those fires in Q4/20, we ended up using that stockpile. We had 100,000t of stockpile. We depleted that down to nothing. So, come middle of January, we were faced with no more stockpile and we started building that up by adding Fairplay North into our mix. Adding that into our mix, and now we are putting in safeguards. We are taking away that risk. We are making sure that we have ore and feed in front of the mill in case we get a call where we are asked to shut down the operations or something like that. We believe that because there is only 6 to 10 people at the mill, that there will be the opportunity to keep open the mill. So, we are making sure we are very proactive in case the roads get closed, in case materials or supplies stop coming in.

Matthew Gordon:  Okay. Stockpiling, I get. That’s smart. I do remember from the previous conversation that you had done that and it kind of saved the day, as it were. So, you were getting back to building up that stockpile. I was really getting at, what has building up this cash, this free cash flow, you are making money now, you are making money, which is always nice, but it is giving you optionality, right? You have talked previously about the ore-sorter and bringing that in in terms of improving productivity. What are the other things that it is allowing you to do now and what are the things that, just in your head, that you are thinking, what’s it going to allow us to do in the future? Because money brings options.

Paul Huet: Right, let’s talk about the cash first and then I will talk about the exploration onsite. In Q1/20, we managed to increase our cash position to CAD$38.4M, what was that? Probably about a CAD$4 to CAD$5M increase from Q4/19. Look, this is an important part here: that is despite paying into CAD$5.3M into hedges. These were legacy hedges that were put in place to reduce dilution when the mill was bought. The hedges made sense whilst they were put in place for the debt. Now, we had 7,500oz of hedges in Q1/20 which cost us USD$5.3M. You add that into what we actually added to our treasury,  you are close to USD$9M to USD$10M cashflow in Q1/20 – that’s an impressive quarter.

Now, where do we go from here? Q2, we burn off those hedges. We believe wholeheartedly that people are investing in us, in fact, we are hearing it, people are telling us. ‘Look, Paul Huet, don’t hedge, don’t hedge. I believe that Gold is going somewhere else.’ Look – I’ve been in Gold for 30-years, I am not the only one who doesn’t believe that Gold has topped yet. There is an unlimited amount to where Gold can become in the next year or so.

So Q2, we will have no more hedges. We have got 35,000oz left, Matt. 35,000oz. We had 7,500oz replaced in Q1, it is easy math – it is 2,500oz pm. That’s what we were doing.  So, once these 3,500oz are gone, our hedges are gone, we are selling at the open market.

Now, what do we do about it? We are in a district that hasn’t had much exploration in almost 2-decades. Matt, we have been talking about it. We have managed to reduce that Morgan Stanley Royalty. We have always said, if we can do some work on these Royalties, we are going to change these locations of the mines. We are in an area, 1,800km2. Within 4-months we have identified 5 new areas within that 18km2 – extra cash will add, we believe organic growth is certainly, certainly something that is doable for us. But certainly, having extra cash opens up a lot of opportunities.

Look, of the 5, I will talk about Fairplay North, which has been very instrumental to us generating the stockpile. I will talk about Aquarius: Aquarius is just South of the mill. The Trident mine was what the mill was built for. It produced 1Moz, Matt. You have got a resource directly South, 5km South of our mill, it is called Aquarius. This thing is wide open. We have intercepts at 6g/t, 200g/t across 2m. We have drilled some holes into that.

So, some of this money; you are saying, well, what are you doing with that cash? There is no doubt that us putting money back into the ground, reinvesting into ourselves, paying off our debt, will really create shareholder value.

Matthew Gordon: Does Trident and Aquarius connect? Do you have enough data? What do you know?

Paul Huet: Look, I would never go out on a limb to say that, but I would say that yesterday on our call, there is indication now that Mouse Hollow and Hidden Secret, yes there are so many of them. Mouse Hollow and Hidden Secret are two satellite between pits that are between Baloo and our mill, so they are closer to the mill. Their grades are similar to Baloo, i.5 to 2g, very high-grade open pit. There is a potential that these two open pits, these two satellite pits, could connect. We are looking at that. You asked where the dollars go? That is a great place to spend dollars for our shareholders where we can unlock value. If these things connect, look – who knows what could happen in this district, right? Again, 5 areas in 4-months:  Fairplay North, we are mining at Mouse Hole, Hidden Secret, Aquarius and then that zone to the north, of the geophysics, it is a 5km structure that has been identified.

You can’t help but be excited in this district, and executing and hitting on all cylinders. Look, at the end of the day, producing cash, I couldn’t be happier.

One more thing, Matt, that I think is really relevant here; people sometimes forget that Gold is AUD$2,600 to AUD$2,700. When you consider the metal price in US dollars, when you consider the FX – oh my god, never in my lifetime have I seen Gold like this. In fact, it has been a record in Australia. It hasn’t happened in anybody’s lifetime. So, it is quite exciting to be mining in Australia at our location with these metal prices and knowing that there is no cap on Gold – who knows where it goes from here?

Matthew Gordon: I think a lot of people are quite excited about where it could potentially go. Watch this space?

Paul Huet: Exactly. Exactly

Matthew Gordon: Look – great quarter. Under conditions, as you say, not many people doing it. We interview a lot of companies. I can count on one hand how many people here are. Congrats on that, you and the team, obviously. Looking forward to seeing what you are going to be able to do with all of this cash. I think that it is a very exciting year for you. It’s no secret, we do write about you and we have been very positive about what you have been able to do in a short space of time. I think this year has started of tough, but it would be great to see what you could do by the end of it.  Thanks for picking up the phone. Keep talking to us. If there is any news, let us know. I am sure it will be coming in thick and fast.

Paul Huet: Right, hopefully we will be talking sooner rather than later. You take care, Matt.

Company Website:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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Serabi Gold (LSE: SRB, TSX: SBI) – It’s bigger than everything we see (Transcript)

The Serabi Gold PLC company logo.
Serabi Gold PLC
  • Shares Outstanding: 59M
  • Share price GB£0.92 (14.05.2020)
  • Market Cap: GB£54M

Interview with Michael Hodgson, CEO of gold producer, Serabi Gold (LSE:SRB, TSX:SBI).

Serabi Gold has been one of our favourite gold stories. Share price has trebled since we started following them. The team has managed to create a strong, stable operation at the Palito and Sao Chico gold mines in Brazil, but with the debt financing agreement (convertible loan notes) for second acquisition, Coringa, looking to be settled, Serabi Gold can push the cross-mine AISC down towards the US$1,000/oz figure, and double production to c. 80,000oz+ per annum of gold.

The Q1/20 production figures were released recently.

– Cash position
– US$14.23M at year-end
– Net cash – USD$5M
– AISC slightly up on 2018: US$1,081/oz
– EBITDA – US$17.2M
– Average gold price received
– US$1,376 – Total mined ore up 8% (at an average grade of 7%)

COVID-19 has negatively impacted most gold producers, but Serabi Gold has managed to successfully mitigate any potential ramifications. It has achieved this through sensible workplace safety practices, and the health & safety stats are also pleasing. Rotating the workforce has been very effective. Any junior gold miner would be chuffed with those numbers. Serabi Gold has now started allocating some money towards exploration for the first time in a while. With its strong cash flow, and with most of its debt finally being repaid, Serabi Gold has now freed up its capital for growth. This could get the market even more excited. The focus is currently on step-out drilling at the west of Sao Chico. Hodgson thinks the company is working its way towards a geophysical anomaly that the company has already been drilling at. There is a possibility the 2 could connect, resulting in some serious upside for Serabi Gold.

What about the much-discussed ore sorter, which could have a further transformative impact on Serabi Gold’s economics? Serabi Gold recently conducted a preliminary test on it. What is the feedback? Hodgson claims the thing is “absolutely singing,” which will be music to gold investors’ ears. He doesn’t have the stats for April just yet, but in March it was upgraded to pass 2,500t at a grade of c. 3g/t, and it screened out a little over 300t at a grade of 21g/t, the rest was 2,200t at a grade of 0.7g/t. Through April, the grades at Palito (50% of feed ore) went up from the usual grade of 6.5g/t to 9g/t. Overall, combined with the non-ore-sorted Sao Chico ore, it is giving the average grade a 1g/t uplift. This might not sound like a lot, but it’s a big change. He expects another healthy increase in the Palito feed grade through April, which will free up space at the production plant to use for better quality material. Smart.

Will the exploration plans distract Serabi Gold from Coringa? It’s certainly a nice problem to have, with organic growth in the company’s “backyard.” Hodgson states Coringa is still just as important. Adding ounces at a low cost gives Serabi the cash flow it needs to grow, and he is not going to forget that anytime soon. Coringa is a very advanced project that Hodgson will continue to focus on. Another focus will be on the areas surrounding Serabi Gold’s producing assets because the company will eventually need to expand its processing plant somewhere. The company has been successful at chasing high-grade veins, but now Hodgson is talking the language of bulk production. However, one of the biggest problems in Brazil is power. He claims the mining infrastructure is improving in the region every day. The company is constantly assessing its cost profile, and its eventual wish is to add in some open-pit production.

Hodgson acknowledges that Brazil is struggling, especially with its lack of medical infrastructure, but states he is confident Serabi will do what it can to keep producing. He states Serabi Gold might not make the guidance numbers it predicated at the pre-COVID-19 start of the year, but if the company reaches 90% of it, nobody will complain, especially at the current gold price. The exchange rate is also on the company’s side.

We Discuss:

  1. 2:17 – Update on Progress: Q1 Numbers
  2. 3:50 – Ore Sorter Preliminary Test Results: Performing as Expected?
  3. 5:41 – Press Release on Exploration: An In-Depth Look into Findings
  4. 14:46 – Distractions from the Coringa Gold Project or Value Building Exercise
  5. 16:49 – Bulk vs High Grade: Preparation for New Opportunity
  6. 18:18 – Country Dynamics to Affect Q2 Results?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Mike, how are you doing, Sir?

Mike Hodgson: Very well, thank you. Good to see you, Matt.

Matthew Gordon: Yes, good to see you. Are you bearing up still?

Mike Hodgson: Yes. Yes. We’re sort of running our operations remotely. We have daily calls, probably two or three calls a day, you know, thank god for Zoom and Skype and WhatsApp and anything else.

Matthew Gordon: It is a game changer. It is a game changer. We have seen your press release and I was interested because it is very different from what you normally talk about and I wanted to kind of get into it. Normally we have this conversation about production and productivity and what’s happening on site, but this is more around exploration at site almost. So, but let’s kick off first. I do need that usual update. So what is happening? Last month you had a bumper month. Have you been able to recreate that in April?

Mike Hodgson: Absolutely. We have. We’ve had another great month. It has really been superb. It is probably, we haven’t quite finalised the numbers yet, but they’re going to be close to 3,500oz, so great way to start a Q2/20, and we still hope that we’re going to be north of 9,000oz for the quarter, which in the circumstances is absolutely fabulous. The guys at site are working really well. We’ve managed to begin to, we’ve got some testing of some tests and we are managing to work out a system of actually rotating about 10 people a week at the moment. So we test people, we bring those 10 people to site. They’re in a separate part of the camp, which is quarantined. They spend sort of eight days there being quarantined and as long as the doctor’s happy with them and they’re all temperature tested, et cetera, they’re all fine they get integrated into the workforce.

That said, the guys at site have been brilliant. I mean, they normally work like 30-15 rostas and some of those guys have been there for 60-days now and they don’t want to leave. They keep going and we’re paying them a little bit of a bonus to keep the enthusiasm going and the motivation, and it is really showing you the numbers. I mean, the health and safety stats, before anyone gets alarmed, are fine: absolutely good. And the production stats are absolutely wonderful. So, you know, yes, I’m just delighted, delighted with the way the operation is going at the moment.

Matthew Gordon: Okay. And what about this ore-sorter? You have kind of done some preliminary tasks and you gave us some initial feedback as to what it has been able to do. Again, is that still performing as expected?

Mike Hodgson: The thing is absolutely singing, I haven’t got the stats for April yet, but in in March, it was upgrading, I think, just loosely in March has given me a bit of an idea; we passed about 2,500t at a grade of around 3g/t, and it screened out a little over 300t at a grade of 21g/t and the rest was 2,200t, the balance, at a grade of 0.7g/t. So it absolutely scavenged all this high-grade Gold.

Now, through April, our Palito grades, eventually go on, the normal Palito grades, because we’re only putting on the Palito part of the deposit at moment, the Palito grades, which generates about 50% of our ore feed, let’s say, the grades would normally have balanced sort of 6.5g/t, 7g/t, and we are basically passing about 9g/t.

So you know, overall, it is meaning, if you combine that with the Sao Chico ore as well, which doesn’t get ore-sorted, it is giving our feed grade at the plant about a 1g/t uplift. Now, 1g/t might not sound like a lot but if your feed grade is 7g/t and it is going to 8g/t, 8.5g/ – big difference. So, it is brilliant. It is working really well.

So yes, I’m looking forward, I mean I haven’t got them yet, but I think they’ll be a very significant contribution and another healthy increase in the Palito feed grade through April. That’s why we’re getting these extra ounces. That’s where it is coming from. It is taking waste out of the feed before it goes to the plant and using that plant capacity with better quality material. That’s the key.

Matthew Gordon: Okay. So that’s great. I mean I guess we’ll get a proper update from you maybe later this month if you can. I want to talk about this press release though. There’s some really nice numbers in here, but I think the bigger story in here is that you’re putting money towards exploration, which you haven’t done for some time. So, because obviously you’re producing, you’re throwing off cash now. So, tell me what you’re aiming to do here, what’s the plan here?

Mike Hodgson: Well, just to touch on your point there about that; I mean, we ever since we put Palito back in production in 2014 and we acquired Sao Chico a year or so later and then put that into production as well, we raised just enough money to do that and not, well, in fact, not quite enough, and we went to Sprott –  a great lender and we borrowed money off Sprott twice. USD$8M, which we paid off, and USD$8M again, which we’ve only got USD$2M left to pay on that and it will be gone by the end of June. So, we’ve basically paid USD$16 million, we borrowed USD$16M of debt and paid it off on a cashflow. So, we’ve never had money for exploration really, we have just been servicing and paying off debt. So, the opportunity for excavation was pretty much parked bar, you know, immediate mine site, head frame explorations, I like to call it, in around Palito and Sau Chico.

But obviously what we did in 2018, we did do a financing. We raised over USD$20M and we did set aside a chunk of money for exploration for the first time in about five years. So, it was great. But perhaps first I’ll talk about the Sao Chico exploration results, which is part of that headframe exploration I just talked about. And that is ongoing program. We have done a couple of releases already this year. It is the continued step out drilling of the Sao Chico extension, westerly, which we’re doing. And I think if one looks at the images in the press release, it is getting very interesting that as we actually stepped out West at Sao Chico, which is all we’re doing beyond the mine limits with surface drilling, we are working our way towards a geophysical anomaly, which is called Cicada, which we’ve also been drilling. And what the compelling thing here is, it is beginning to look like we’ve got the various sort of interesting possibility that this is all going to join up.

So essentially, what we’re drilling is the gap; the gap between Sao Chico and this geophysical anomaly called Cicada.

Matthew Gordon: So, let’s look at that. There’s a couple of diagrams in the press release. Do you mind sort of talking me through those?

Mike Hodgson:  Well, if we look here, we can see the Sao Chico deposit. You can see the mine limits down there in the sort of the South East corner. And that’s what we’ve been mining over the last few years. It is open to the South East, which is the area called Highway. We’ve got no holes in this release on that area at the moment. We are going to go back there, but we’ve been focusing on the area to the West. You can see there, I know it is not exactly showing the scale, but you can see we’ve got sort of 6 or 7 holes now in that area beyond the Western limit of the mine area, going towards that Lake area.

Now, we’ve got some really nice intersections in there, minable grades. Of course, what’s beginning to interest us is, at the same time with this release, we’ve got our first results from the Cicada anomaly. Now, those sort of coloured areas you see to the West there, they’re all to terrestrial or geophysical anomalies, which we obtained from the site last year. And we actually started drilling at the beginning of this year.

We’ve got our first our first sort of start results. So, we’re drilling, not with core drilling here, we’re drilling with what’s RC drilling. So, it is much courser drilling where you just collect rock chips. You don’t get such an accurate sample, but it is kind of discovery drilling. But there’s enough there for us to get pretty excited about. We’ve got three metres at 2g/t, including one at over 5g/t, which is very, very Gold bearing. And the interesting point is it is bang on projection of the Sao Chico ore zone and as we’re moving West it is becoming to become quite possible for us that these things might all join together, which is really very interesting.

So now, if we look at that in terms of the long section, so now we can see long section-wise, the mine on the right hand side, you can see all the levels in blue, you can see the areas we’ve been mining and are mining in yellow. And you can see where we’re drilling all around the edges, obviously to the West, sorry, to the East, at depth. We still have some intersections right down there at the bottom and the mine is going down and down and down. But we’re drawn in a drill, that area to the West of the mind, the information gap as I call it, between Sau Chico and Cicada, that is a terrestrial geophysics anomaly, which we’ve just actually started drilling and got those hits up at the top. So, we’ve got a nice area, about 6,000 to 7,800m there to fill in, and we’re just stepping along, going West, time, time and time. The last intersections we actually got were not so wide, but the structure was still going strong and it was still over 1g/t.

But you can see in there, we’re picking up some really nice numbers; we’ve got over 5n at 12g/t, another sort of 12g/t in there. So right at the top there we’ve got nearly 2 metres to 28g/t. So it is some really nice numbers and a big area to obviously justify extending that mine West as we go. And we’ll just continue drilling that gap all the way to Cicada. And if this thing joins up, we’re sitting on some pretty, some pretty nice resource growth at Sao Chico.

Okay. So here we have the results of that airborne geophysics survey with the geochemistry superimposed. When we first received this, we were pretty, well pretty excited about this because there we have the Palito mine at the top where our plant deposit is, and Sao Chico down there in the Southwest corner.

And never in a moment did we think we’d have this huge geophysical magnetic, anomalous high with all those little black areas. They are the little, they’re the electromagnetic anomaly, which is another type of geophysics, and they are usually an indicator of massive sulphide. So, you can see, there’s a chain of them that sit on the flank – so that big magnetic highlight.

It is a huge feature and it obviously makes us think that there’s a different rock type, a favourable rock type of sulphide mineralization. And we obviously have those black dots that give the electromagnetic highs going along with it. So, what we’ve done, we’ve actually superimposed soil geochemistry over the top and hey ho, we’ve got a nice coincidental Copper anomaly as well.

So, the plan now is to hone in on those anomalies and actually see if we get a coincidental Gold anomaly. And you can see down there on the Cinderella shear, we do. And that’s got a really nice series of contiguous Golden anomolies there. So that’s really excellent. And what we’re going to do there is do even tighter lines like closest space sampling and see if we can join all those, if they become, they join up and actually become a really nice continuity anomaly there, make those drill-ready.

But probably the two that really excite us now is this one area called Calico and Jura, which are over at the West end. Really looking at the closeup apps, Calico and Jura. We, this is an area where we’ve actually already taken the Copper soil samples that were anomalous and re-assayed them for Gold and got some really terrific results. And you can see there at Calico, we’ve got a series of really high grade, 30 parts per billion Golden soil anomalies. And they, interestingly enough, I look at that, I see the orientation of those anomalies and they are exactly the same orientation strike, as we call it as the Palito deposit. So, I think that’s going to be a big stack of veins, just like at Palito. And I’m sure that’s what that’s going to end up being. The geology is very similar, so it really does look like a Palito copy so far, at this stage, from a geochemical anomaly viewpoint. There are only 5km to Palito, so it is pretty easy to actually start something there and truck it up to the Palito plants. That’s not going to be an issue.

And to the South, we’ve got this one called Jura, now, this one probably is even more exciting because it has all the components that you would want to see for some type of scalable deposit. It is over a kilometre in diameter. It has got coincidental Copper, Gold and other elements like molybdenum, tellurium bismuth. Multi elements that you would actually find in a porphyry type deposit. And we already know the rocks that we have are right for that. So, these are the two that we actually want to sort of move forward with and get close to space sampling on, see if we can tighten these up and all being well, drill them in Q4/20 and see what we can find there.

It is looking very much like a Palito: the rocks are the same. It is only 5km from Palito, so it is pretty exciting.

Matthew Gordon: Okay. So what I’m hearing is that you’re very excited. I can hear that and you know how you’re going to tackle it. I guess, people, you know, shareholders and people are looking at you afresh are going to be like, well, is this going to distract you from the work that you’re going to do at Coringa?

Mike Hodgson: I’ve been asked that a few times from investors in the past, and obviously, I suppose it is a nice problem to have. We’ve got such good organic growth upside in our backyard. Look, Coringa is very advanced, established, as you, as you quite rightly say; it is a Palito lookalike and it is going to do very nicely. Thank you.

I think what these results show us is how important organic growth is as well. You know, we can actually add ounces in our own backyard very cheaply. We can actually find satellite deposits which are all sort of built, dovetailed into our sort of plant expansion plans, whether they be at Palito or Sao Chico. So it is important to realise that potential in and around our 2 producing areas to see where are we going to do a plant expansion, which obviously we need to do at some point in time. And  this is what it is about.

I suppose I would like to add though that, you know, when you see something so big on the geochemical anomalies and the geophysical anomalies like this, we are mining high-grade veins at Palito, at Sao Chico and we will be at Coringa. But the scale of these anomalies, the size of them is, and the rock types they’re in, do look very similar to what the Anglo Americans of the world were looking at in Matagroso state in the South. And you know, not that we’re going to jump into bed with Anglo American or RTZ or any major, we’ve had several visits at site about these guys, wanting to come and look at what we’ve got. They’re very excited about it also; about the potential.

You know, these big magnetic anomalies are indicative of magnetic altered granites, which are usually hosts for bulk, porphyry type mineralisation. And so, we’re pretty excited about that we might have something, some real scale in our own backyard. So, you know, all we can do now is work our way through the process, prove the mineability.

Matthew Gordon: That’s kind of interesting to me. So, obviously, you have been used to chasing high-grade veins and you’re good at it, you know, you have been able to do it economically and you are obviously throwing off cash at the moment, but you are now talking the language of a different type of opportunity. You’re talking about bulk. I presume therefore, more homogenous low-grade type activity. Are you equipped or set up to deal with that as well?

Mike Hodgson: Well, a fair bit of water is going to flow into the bridge first. I mean, obviously I think, you know, one of the biggest challenges in the region is power, and that’s why probably high-grade veins work in this part of the world at the moment. But it is I think, I think as every day passes in this part of Brazil, you know, the road improvement and infrastructure improvements happening. You know, I think there’s a lot of will to actually improve the power situation in the region. And certainly, we can look at that. It just depends on the scale. But certainly, one thing that we want to do is, is address our cost profile and you know, adding in some open pit production one day with our sort of high-grade vein in mining is our wish. That’s our wish. And if we can do it organically, all the better, all the better.

Matthew Gordon: Fantastic. Okay. Well look, Mike, it sounds like things are going well. You’re coping with COVID-19, keeping the numbers flowing, which, I guess, should excite the market because I think others are struggling somewhat there. Should we expect more of the same for Q2? Or is it just see how it goes? Because what’s happening in-country, I guess is where I’m getting to?

Mike Hodgson: Well it is, Brazil is struggling and there’s no doubt and there’s no denying that. We are remaining very isolated from what’s actually happening outside. You know, people only need to read the news and see; there’s a lot of, particularly in the north of Brazil, they haven’t got the infrastructure, the medical infrastructure that we enjoy in in Europe or the US. So it certainly is challenging. What we’re doing, we think we have found a formula for rotating the workforce. The workforce has become very, very flexible and they’re working much longer periods of time than they normally would work. And as long as that will stays, we think we can find a way through of having a good Q2/20 and now we think we can have a very reasonable Q3/20. We might not make the guidance numbers that we said at the beginning of the year, but I think if we got 90% of it, no one’s going to complain. And to be perfectly honest, with the Gold price that we’ve got, 9,400, 9,500/Real an oz, and certainly making 3,000 pounds plus months, our cash flow is going to be in pretty good shape.

Matthew Gordon: And is the exchange working in your favour?

Mike Hodgson: Very much so. Very much so. That’s huge. I mean, the exchange rate today is BRLR$5.3/USD$1. BRLR$5.42 you know, our budgets were done at 3.70, so it is a, yes, let’s say that costs 85% in reals, and you know, exchange rate, 9,500 Reals/oz. You know, two months ago it was 6,000 Real/oz, it is a great time to be a producer in Brazil. Well from an economic perspective.

Matthew Gordon: Certainly. Certainly, yes. Mike, thanks very much for that update. You know, your story we quite like and we follow you avidly because I think that the potential is there and I think with, maybe, exploring; the possibility of adding bulk to this high-grade story could be very interesting for you. So, keep us up to date about things going on. I guess it is very fluid at the moment, so I appreciate the phone call.

Mike Hodgson: Many thanks.

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